China’s economic recovery continued in January at slower pace as virus outbreak takes toll

Amanda Lee in Beijing, South China Morning Post

Posted at Jan 31 2021 03:55 PM

China’s economy recovery continued in January but at a slower pace, as the resurgence of coronavirus in parts of the country took a toll on business sentiment, led by a sharp drop in service sector morale.

The official manufacturing purchasing managers’ index (PMI) – a survey of sentiment among factory owners in the world’s second-largest economy – fell to 51.3 last month from 51.9 in December, according to the National Bureau of Statistics (NBS).

December’s reading was below the median prediction of a poll of analysts conducted by Bloomberg, which expected a small drop to 51.5.

China’s non-manufacturing PMI – a gauge of sentiment in the services and construction sectors – fell to 52.4 in January, down from December’s reading of 55.7 and well below analysts forecasts for a smaller drop to 55.0.

Within the non-manufacturing PMI, the subindex for the construction sector fell to 60.0 in January from 60.7 in December, while the service sector business activities index fell to 51.1 from 54.8.

A reading above 50.0 indicates growth in sector activity, while a reading below represents contraction. The higher the reading above 50, the faster the pace of expansion.

The official composite PMI – a combination of the manufacturing and non-manufacturing indices – fell to 52.8 in January from 55.1 in December.

The recent resurgence in the coronavirus epidemic “has had a certain impact on the production and operation of some enterprises” in the industrial sector, NBS senior statistician Zhao Qinghe said in a statement accompanying the data. He also noted that the approaching Lunar New Year holidays was the “traditional off season” for the sector, and so had an impact on output.

“Growth momentum in the service industry declined. Affected by the local epidemic clusters, the business activity index of the service industry was 3.7 percentage points lower than last month, at 51.1 per cent. Although the service industry still maintained a recovery trend, the sentiment level has dropped,” Zhao said.

Whtin the service sector, the accommodation, catering, culture, sports and entertainment, and resident services subsector showed contractions in activity, Zhao said.

“In addition, logistics has slowed in some areas recently, coupled with the reduction in business and personal travel, the business activity index for road transportation, air transportation and other industries has dropped below the critical point, with industry activity contracting.”

The slowdown in construction activity was due in part to low winter temperatures and the approach of the Spring Festival holiday, Zhao said.

China’s economy grew by 2.3 percent in 2020, the lowest growth rate since 1976, but it is expected to be the only major economy to have expanded last year due to the coronavirus.

The economic rebound last year was highlighted by a significant acceleration over the last three months of 2020, when China’s economy grew by 6.5 per cent from a year earlier, ahead of analysts’ forecasts of 6.2 per cent growth and in line with the growth rate at the end of 2019, before the original coroanvirus outbreak.

Last week, the NBS confirmed profits at China’s industrial firms grew for the eighth straight month in December, suggesting a sustained recovery as the manufacturing sector rapidly emerged from its coronavirus slump.

Profits surged 20.1 per cent year on year in December to 707.11 billion yuan (US$109.3 billion), after rising 15.5 per cent in November.