China’s Manufacturing Likely Contracted Again on Power Shortages
(Bloomberg) -- China’s factory slump showed no signs of letting up in October, with activity likely contracting for a second straight month as electricity shortages and soaring commodity prices hit manufacturers.
The official manufacturing purchasing managers’ index was likely little changed at 49.7 this month from 49.6 in September, according to the median estimate in a Bloomberg survey of economists. Readings below the 50-mark signal contraction. The National Bureau of Statistics is scheduled to release the data at 9 a.m. Sunday in Beijing.
An electricity crunch that began in September extended into this month, although probably eased as the government rolled out a slew of measures to contain the crisis. On top of that, consumer spending remains weak and manufacturers are battling higher prices.
“The biggest problem for manufacturing is that domestic demand and consumption is still quite weak, and it’s been sluggish for the entire year,” said Zhou Hao, senior emerging markets economist at Commerzbank AG in Singapore.
Soaring commodity costs pushed up producer inflation to its highest level in almost 26 years in September, and a set of data tracked by Bloomberg Economics indicates a further pickup in prices this month. That’s squeezing profits of downstream producers, like consumer-goods makers.
On the plus side, export demand remains strong, as recent South Korean trade data showed, providing a boost to manufacturing. China’s exports reached a monthly record of $306 billion in September.
What Bloomberg Economics Says...
China’s October PMIs are likely to show mild cross-currents in a generally still-sluggish economy. The manufacturing sector may have avoided further weakening but likely remained in contraction with no signs of an imminent turnaround. The non-manufacturing sector probably slowed.
Chang Shu and Eric Zhu
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The non-manufacturing index, which measures activity in the construction and services sectors, likely softened to 53 from 53.2 in September. The repeated Covid outbreaks and tighter virus control rules have weighed on consumer sentiment, while construction activity is under pressure from a slowdown in government infrastructure spending and a crackdown on the property sector.
Economists have cut their fourth-quarter growth forecasts sharply because of the property turmoil and power shortages, with a further slowdown expected next year.
A set of earliest available indicators tracked by Bloomberg signaled the risk of a further downturn this month, with car and housing sales dropping again even as exports continue their strong performance and the government seeks to allay concerns over growth.
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