Factory activity in China in the month of December increased, sustaining its recovery form the pandemic to pre-pandemic levels but the pace of growth slowed down because of cost pressures, showed a business survey published Monday.
The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) fell to 53.0 from November’s 54.9. However the index sustained well over the 50-level that separates growth from contraction but missed analysts’ expectations and slowing down to the slowest level in three months. Analysts had expected the index to be at 54.8.
Strong exports have helped the second largest economy of the world to stage an impressive recovery from the coronavirus pandemic shock by the vast industrial sector of China. For the entire of 2020, the Chinese economy is expected to grow at about 2 per cent which would be the weakest for the country in more than three decades but will be much stronger then all of the other major economies, most of which are still struggling to contain the spread of the pandemic.
However China could face slower industrial demand because of imposition of tougher coronavirus pandemic control measures in a number of its key exporting markets in the West which is expected to impact the Chinese economy.
The results from the The Caixin PMI data followed an official gauge of factory activity of China which is more focused on larger and state-owned companies also slowed down but still remained strong.
“The negative impact of the pandemic on the domestic economy further subsided and the manufacturing industry continued to recover. Both the supply and demand sides continued to improve. Overseas demand also steadily increased,” Wang Zhe, senior economist at Caixin Insight Group, wrote in a note accompanying the survey release.
There was a sharp rise in input prices at the fastest rate since 2017, showed the private sector survey, with the rise being primarily pinned on more costly raw materials, especially metals. And for the first time in four months, more employees were laid off in December by factories than were hired for the first time in four months.
“We need to pay attention to the mounting pressure on costs brought by the increase in raw material prices and its adverse impact on employment, which is particularly important for the design of the exit from stimulus policies implemented during the epidemic,” said Wang.
There was also a slowdown in December in gauges of both total new orders and factory output compared to November’s figures but was still strong enough. There was also a slowdown in growth in new export orders.
“We expect the economic recovery in the post-epidemic era to continue for several months, and macroeconomic indicators will be stronger in the next six months, taking into account the low bases in the first half of 2020,” said Wang.
(Adapted from CNBC.com)