China Manufacturing Contracts On Tight Restrictions

China’s manufacturing sector contracted notably in March due to the tight restrictions imposed to contain the spread of the latest wave of the coronavirus, survey results from S&P Global showed on Friday.

The Caixin Purchasing Managers’ Index fell to 48.1 in March from 50.4 in February. The pace of decline was the quickest seen since February 2020. A score below 50.0 indicates contraction.

There was a renewed fall in production as the strict restrictions disrupted operations, supply and dampened customer demand. The fall in production was the steepest seen for 25 months.

Similarly, new orders fell at the sharpest rate since February 2020. Companies commented that both domestic and foreign demand had waned due to the greater uncertainty caused by the Ukraine war.

Disruption to business operations and logistics due to containment measures led to a further deterioration in average supplier performance.

Higher COVID-19 case numbers and increased restrictions added pressure to capacities, as backlogs of work rose slightly for the second month in a row. Companies cut back on their purchasing activity.

Input cost inflation rose to a five-month high and output price inflation was the strongest since last October as firms sought to pass on additional expenses to clients.

Business expectations regarding future output waned to a three-month low in March. Companies cited a number of headwinds to the outlook, most notably, uncertainty relating to the pandemic, the war in Ukraine and steep rises in costs.

“At present, China is facing the most severe wave of outbreaks since the beginning of 2020,” Wang Zhe, a senior economist at Caixin Insight Group said. Meanwhile, uncertainty increased abroad.

The prospect of the war between Russia and Ukraine is uncertain, and the commodity market convulsed, the economist added. A variety of factors resonate, aggravating the downward pressure on China’s economy and underscoring the risk of stagflation.

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