Factory activity in China in November likely contracted at a slower pace

BEIJING (Reuters) – Factory activity in China is likely to contract at a slower pace in November as supply difficulties and power outages ease, but persistent weakness in the manufacturing sector points to a further slowdown in the economy, a Reuters poll showed.

The official manufacturing purchasing manager’s index (PMI) is expected to rise to 49.6 in November, up from 49.2 in October, according to the median of 29 economists polled by Reuters on Monday. A reading below 50 indicates a contraction from the previous month.

Analysts attributed the shallow contraction to the slight increase in production after the holiday and the easing of blackouts in most parts of the country, although factors such as higher raw material prices, a slowdown in the real estate sector and a lack of supplies continue to hamper the post-Covid-19 recovery.

Jian Zhang, chief Chinese economist at Barclays (LON :), in a note on Friday.

The world’s second-largest economy, which made an impressive recovery from the pandemic recession last year, has lost momentum since the second half as it grapples with a slowdown in the manufacturing sector, debt problems in the property market and the coronavirus outbreak. Analysts expect a further slowdown in GDP growth in the fourth quarter.

Blackouts eased after policy makers moved to suppress record coal prices. The State Grid Corporation said on November 7 that energy rationing has ended in most parts of the country, with the exception of temporary restrictions on high-emissions industries in some counties.

Prime Minister Li Keqiang acknowledged last week that the Chinese economy is facing new downward pressures, but said authorities should avoid a one-size-fits-all “aggressive” approach.

China’s central bank is likely to move cautiously on easing monetary policy to support the economy, political sources said, as slowing economic growth and rising factory inflation heighten concerns about stagflation.

Factory gate inflation hit a 26-year high in October, further compressing profit margins for producers and raising stagflation fears.

The official PMI, which focuses largely on large and state-owned firms, and its sister survey of the services sector, will be released on Tuesday.

The Caixin Manufacturing PMI will be published on Wednesday. Analysts expect the headline reading to ease slightly to 50.5 from 50.6 the previous month.

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