UPDATE 4-Chinese-made, services contract together for the first time since 2020

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BEIJING, March 31 (Reuters) – Activity in China’s manufacturing and services industries simultaneously contracted in March for the first time since the country’s COVID-19 outbreak peaked in 2020, adding to the the urgency of increased political intervention to stabilize the economy.

The official Purchasing Managers’ Index (PMI) for the manufacturing sector fell to 49.5 from 50.2 in February, the National Bureau of Statistics (NBS) said on Thursday, while the non-manufacturing PMI fell to 48 .4 against 51.6 in February.

The last time both PMI indices were simultaneously below the 50 point mark that separates contraction from growth was in February 2020, when authorities rushed to stop the spread of the coronavirus, first detected in the central city of Wuhan in China.

The world’s second-largest economy accelerated in January-February, with some key indicators beating expectations, but now risks slowing sharply as authorities restrict production and mobility in COVID-hit cities including Shanghai and Shenzhen.

“Recently, epidemic clusters have occurred in many places in China, and together with a significant increase in global geopolitical instability, the production and operation of Chinese enterprises have been affected,” said Zhao Qinghe, statistician. principal of the BNS.

Shanghai’s COVID-19 lockdown has disrupted auto production in recent days as two major suppliers joined Tesla in closing factories to comply with measures to control the spread of the coronavirus.

“The PMI weakened as Omicron outbreaks in many Chinese cities led to shutdowns and disruptions in industrial production,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.

“As Shanghai’s lockdown only took place at the end of March, economic activities are likely to slow further in April.”

The production sub-index fell below 50 points for the first time since October, to 49.5, indicating a contraction. The new orders gauge was also in negative territory.

“Due to epidemic outbreaks, some enterprises in some regions temporarily reduced or stopped production, which also affected the normal production and operation of upstream and downstream enterprises,” Zhao said.

Some companies have also seen the cancellation or reduction of overseas orders due to geopolitical uncertainties, Zhao said.

Weakening production and demand accelerated the contraction in factory jobs, with the employment sub-index dropping to 48.6 in March, the lowest since February 2021.

WORST SINCE WUHAN

“PMIs likely underestimate the hit to activity last month,” said Julian Evans-Pritchard, senior China economist at Capital Economics.

“The services index remained above the low of 45.2 reached last August during the Delta wave. This is likely because the survey was conducted before the worst disruptions.”

To cushion the impact of further COVID-19 closures, authorities have unveiled measures to support businesses, including rent waivers for some small businesses in the service sector.

On Wednesday, the government announced that it would put in place policies to stabilize the economy as soon as possible amid heightened pressures.

The central bank, which kept its benchmark interest rate for business and household loans unchanged in March, is expected to cut rates and lower reserve requirements for banks as downward economic pressures build, according to analysts.

China’s official composite PMI, which combines manufacturing and services, came in at 48.8 in March from 51.2 in February.

The composite PMI was at its second-lowest reading on record since February 2020, when the initial COVID outbreak caused the index to drop to 28.9.

“This suggests the economy is contracting at its fastest pace since the peak of the initial COVID-19 outbreak in February 2020,” Evans-Pritchard said. (Reporting by Ellen Zhang, Stella Qiu and Ryan Woo; Editing by Sam Holmes and Bradley Perrett)

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