Global investors are likely bracing for another wild trading session on Monday after a report on Saturday showed Chinese manufacturing activity plunged to an all-time low in February, with the first official data published amid the coronavirus outbreak confirming fears over the impact on the Chinese economy.
China’s Official Manufacturing Purchasing Managers’ Index Plummets to Record Low
The official manufacturing purchasing managers’ index (PMI) slowed to 35.7, the National Bureau of statistics (NBS) said on Saturday, having slipped to 50.0 in January when the full impact of the coronavirus was not evident.
Analysts were looking for the February reading to come in at 45.0. A reading below 50 indicates a contraction in sector activity. The farther the figure is below 50, the greater the contraction in activity.
In retrospect, China’s official manufacturing PMI dropped to 38.8 in November 2008 at the start of the global financial crisis.
The internals of the official manufacturing PMI showed, China’s export order sub-index dropped to 28.7 from 48.7 in January, while imports fell to 31.9 from 49.0. The sub-index for manufacturing production nosedived to 27.8 in February from January’s 51.3, while the reading for new orders plunged to 29.3, down from 51.4 a month earlier.
Meanwhile, the employment index dropped to 31.8, a decrease of 15.7 points from the previous month, indicating that the employment level within manufacturing enterprises had decreased.
Analysts React to China’s Factory Activity Plunge
“The economy experienced huge negative growth in February, the trough has been reached, and the duration of the impact should be monitored in the next step. It is the time to call for new to turn the crisis into an opportunity,” Ren Zeping, chief economist at Evergrande Research Institute, said on Weibo.
Hua Changchun, an economist at brokerage firm Guotai Junan Securities, said the PMI reflected the deep troubles faced by Chinese manufacturers amid the coronavirus. On one hand, the low employment sub-index showed factories are finding it hard to recruit the labor they need, while the high input price sub-index pointed to higher costs for manufacturers due to disrupted logistics and supply chains.
Nomura expects first-quarter growth to be at 2.0% year-on-year while Capital Economics estimates China’s economy would contract outright in year-on-year terms this quarter, for the first time since at least the 1990s.
Caixin/Markit Manufacturing Purchasing Managers’ Index on Tap
The private-sector Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) due on Monday – which analysts say focuses more on smaller export-driven firms – is also expected to show a similar contraction at 45.7, compared with an expansionary 51.1 in January.
This article was originally posted on FX Empire
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