After a wave of COVID-19 infections spread through China more quickly than anticipated as a result of the abandoning of pandemic restrictions, the country’s economic activity turned back to growth in January.

The first comprehensive data to demonstrate how rapidly China is recovering from its COVID reopening wave showed domestic orders and consumption driving output higher, but analysts cautioned that the economy faced prolonged weakness in external demand.

The National Bureau of Statistics (NBS) reported on Tuesday that the official purchasing managers’ index (PMI), which gauges industrial activity, increased to 50.1 in January from 47.0 in December. According to a Reuters poll of economists, the PMI was expected to be 48.0. Since the outcome was more than 50.0, growth was implied.

More pronounced than economists had anticipated, the recovery in non-manufacturing activity was aided by a seasonal uptick in spending for the Lunar New Year holiday. This indicator, which includes services, increased from 41.6 in December to 54.4 today.

In the past, both indices had shown that the economy has been declining since September.

“The PMI data showed that confidence in production, operation, and the state of the market has improved significantly,” Bruce Pang, chief economist at Jones Lang Lasalle, wrote in a note, while pointing to the level of a sub-index for new export orders, just 46.1, as cause for concern.

The demand for China’s exports, which were 9.9% lower last month compared to a year earlier, has decreased as foreign economies have weakened as a result of rising interest rates.

Since everyone is still being cautious, the activity rise in January “is a little unexpected,” according to Dan Wang, chief economist at Hang Seng Bank China. “Workers often take two weeks off during the month of the Chinese New Year, making it difficult for PMI to increase during that time.”

“All the other real indicators – employment, inventory and delivery times – got worse …. Export orders went down, so that means domestic orders must have gone way up,” she added.

However, the rate of activity recovery is consistent with what is now known to have been an infectious wave that arrived swiftly, disrupting work and consumer demand, and then likewise receded rapidly, leaving factory managers to resume production and shopkeepers to welcome back consumers.

Before the Lunar New Year celebrations began, 80% of people in China had already contracted COVID-19, according to the nation’s top epidemiologist.

However, robust holiday spending has overstated the January PMI data. Consumption for the Lunar New Year was already reported to be 12.2% higher than during the same period last year, and travel within China for the same period increased 74% as people went outside to celebrate for the first time in three years without COVID-19 restrictions.

Following a zero-COVID approach for over three years, China first relaxed pandemic limits in November before essentially abandoning them in the first few days of December.

The firms made an effort to make up for last year’s difficulties over the holiday season. Kevin Whyte, who buys home goods in China for a significant British retailer, told Reuters that his partner plant in China had given bonuses to employees so they could cut the length of their holidays around the New Year.

The cabinet announced on Saturday that it will support a rise in consumer spending, which is the main engine of the economy, and also work to support importers.

The IMF discussed the pace of China’s economic recovery on Tuesday. It warned that the positive effects of increased movement will pass quickly.

The international organisation increased its forecast for the rise of the gross domestic product in 2023 from 4.4% to 5.3%, but warned that growth would likely decline once again to 4.5% in 2024.

Official manufacturing and services PMI increased from 42.6 in December to 52.9 in January.

On February 1st, the Caixin manufacturing PMI for the private sector, which places more emphasis on small businesses and coastal areas, will be released.

According to Reuters’ poll of analysts, the headline reading will be 49.5, up from 49.0 in December.

(Adapted from WionNews.com)

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