Tuesday, January 31, 2023

China’s factory activity expected to shrink slightly in October

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© Reuters. FILE PHOTO: Employees wearing face masks work at a factory of the component maker SMC during a government organised tour of its facility following the outbreak of the coronavirus disease (COVID-19), in Beijing, China May 13, 2020. REUTERS/Thomas Peter

BEIJING (Reuters) – China’s factory activity likely contracted slightly in October, a Reuters poll showed on Friday, as high raw material prices and power cuts continued to pressure manufacturers in the world’s second-largest economy.

The official manufacturing Purchasing Manager’s Index (PMI)is expected to rise to 49.7 in October, just above a reading of 49.6 in September, according to the median forecast of 23 economists polled by Reuters. A reading below 50 indicates contraction from the previous month.

China’s economy rapidly recovered from a pandemic-induced slump last year, but momentum has weakened in recent months, with the vast manufacturing sector facing heightened costs and production bottlenecks, and more recently, electricity rationing.

Power curbs should have eased slightly after policymakers moved to bring down coal prices, although overall factory activity is still likely to have shrunk, said analysts at Standard Chartered (OTC:) Bank.

“The authorities introduced steps to boost coal supply and raised the price cap for power supply to promote electricity production and contain demand from high-energy-consuming industries,” they said.

September factory gate inflation rose to a record on soaring commodity prices, but weak demand capped consumer inflation, forcing policymakers to walk a tight rope between supporting the economy and further stoking producer prices.

China is also dealing with ongoing small-scale coronavirus outbreaks, which could disrupt economic activity. Health authorities reported 64 new confirmed coronavirus cases for Oct. 28, with local infections concentrated in the country’s north.

Profits at China’s industrial firms rose at a faster pace in September despite surging prices and supply bottlenecks, thanks mainly to stellar growth in mining and raw materials industries although some businesses struggled to shake off the high costs.

Analysts polled by Reuters expect the People’s Bank of China to refrain from attempts to stimulate the economy by reducing the amount of cash banks must hold in reserve until the first quarter of 2022.

The official PMI, which largely focuses on big andstate-owned firms, and its sister survey on the services sector,will be released on Sunday.

The private Caixin manufacturing PMI will be published on Monday. Analysts expect the headline reading will stay at 50, the same as the month before, with activity stable.

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