China’s economy started the new year on a weaker footing as new coronavirus outbreaks and pandemic-containment measures sapped factory production and weighed on the country’s services recovery, official data showed Sunday.
Official gauges of industrial and services activities eased more than expected in January, with demand taking a particular hit as authorities discouraged travel ahead of February’s Lunar New Year festival, according to data from Beijing’s National Bureau of Statistics.
China’s official manufacturing purchasing managers index softened to 51.3 in January, lower than December’s 51.9 reading and the 51.5 median forecast among economists polled by The Wall Street Journal.
The nonmanufacturing PMI, which includes services and construction activity, weakened even more to 52.4, from 55.7 in December, according to the statistics bureau.
Though both indexes showed activity remaining above the 50 mark that separates expansion from contraction, the new-orders subindex for the nonmanufacturing sector, a key measure of demand, dropped below the 50 line—to 48.7 from 51.9 the previous month—marking the lowest level since February last year, when the Chinese economy was absorbing the very worst of the coronavirus shock.
Sunday’s PMI readings provided the first look at the economic damage wrought by fresh outbreaks of the coronavirus in northern China—the worst since the initial outbreak that began in Wuhan about a year ago. The latest wave has sickened hundreds and put restrictions on the movements of millions of people.
To keep the number of cases from rising further, government authorities nationwide are dissuading residents from traveling during the most important holiday of the year, Lunar New Year, which runs for a week beginning February 12.
The stricter quarantine and testing requirements imposed during this frantic season—when hundreds of millions of people typically travel to see family and splash out on gifts and dining—are likely to restrain economic activity.
Services requiring close human contact have borne the biggest brunt. Subindexes tracking business activity in catering, accommodations, logistics, transportation and entertainment fell sharply into contractionary territory in January, official data showed.
Hunter Chan, an economist at Standard Chartered Bank, expects the damage to persist through the end of the festival in late February, though he is optimistic that the economy will rebound.
“The economy will normalize quickly as effective control measures limit the prolonged impact,” he said.
As coronavirus restrictions threaten a second straight year of Lunar New Year festivities, local governments have in recent weeks rolled out shopping vouchers in hopes of enticing people to stay in place over the holiday and to keep spending.
China’s services and consumption sectors have lagged behind its broader economic recovery over the past year amid lingering concerns over infections and worker incomes that have been squeezed by the pandemic.
China’s 2.3% expansion in gross domestic product in 2020, which made it the only major economy to post growth last year, was powered largely by industrial production, exports and government-backed investment. Retail sales, by contrast, was one of the few closely watched economic indicators to finish 2020 lower than the prior year.
In addition to the weakness in the services sector, Sunday’s PMI reading also showed emerging signs of slowing momentum in the industrial sector, with both demand and production easing.
The subindex measuring manufacturing production fell to 53.5 in January, from 54.2 in December, while total new orders dropped to 52.3 from December’s 53.6 reading. The subindex tracking new export orders also eased to 50.2 from 51.3 in December, but remained above the 50 mark for a fifth straight month.
China’s statistics bureau said some workers had returned to their hometowns in anticipation of the tightening control measures, leading to a labor shortage at some factories.