China’s Factory and Service Activity Contracts as Cities Go Under Strict COVID-19 Curbs

China’s activity in factory and services sectors contracted in March, according to an official survey showed on Thursday. The contraction comes for the first time since the peak of the country’s COVID-19 outbreak in 2020.

The official manufacturing Purchasing Managers’ Index (PMI) fell to 49.5 from 50.2 in February, the National Bureau of Statistics (NBS) said, while the non-manufacturing PMI eased to 48.4 from 51.6 in February.

China’s official composite PMI, which combined manufacturing and services, stood at 48.8 in March compared with 51.2 in February.

The last time both PMI indexes simultaneously were below the 50-point mark that separates contraction from growth was in February 2020, when China was grappling with its first outbreak of COVID-19.

Chinese economy revived up for the first two months of 2022 but now at risk of loosing the momentum as authorities restrict production and mobility in many cities, including Shanghai and Shenzhen, to stamp out a rash of COVID outbreaks

“Recently, clusters of epidemic outbreaks have occurred in many places in China, and coupled with a significant increase in global geopolitical instability, production and operation of Chinese enterprises have been affected,” said Zhao Qinghe, senior NBS statistician, as reported by Reuters.

“PMI weakened as the Omicron outbreaks in many Chinese cities led to lockdowns and disruption of industrial production,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management, as reported by Reuters.

“As the Shanghai lockdown only happened in late March, economic activities will likely slow further in April.”

To cushion the impact of new COVID-19 lockdowns, authorities have unveiled steps to support business, including rent exemptions for some small services sector firms.

The central bank, which kept its benchmark interest rate for corporate and household lending unchanged in March, is expected to cut rates and lower reserve requirements for banks as downward economic pressures build, analysts say.