China’s economy slows further as manufacturing contracts for first time in two and a half years

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By John Carter
China’s economy slowed further in December, with data released on Monday showing manufacturing sector activity contracted for the first time in two and a half years.

The purchasing managers’ index (PMI) fell to 49.4 from 50.0 in November, with December falling below the watershed point between expansion and contraction in the sector for the first time since dropping to 49.9 in July 2016.

It was also the lowest since hitting 49.0 in February 2016.
The decline was largely unexpected, with the median forecast in a Bloomberg surveypredicting an unchanged reading.

The drop in manufacturing activity was led by a contraction in export orders for the seventh straight month to the lowest level since November 2015.

The decline was partly offset by activity among non-manufacturing firms, mostly service sector companies, which picked up in December, with the index rising to 53.8 from 53.4 in November.

The November index was the highest since reaching 54.9 in September, and was stronger than expected, with Bloomberg’s survey forecasting a small drop to 53.2.

Combined with weaker sentiment data in October and November, the December numbers suggest a further slowing of Chinese growth in the fourth quarter from the 6.5 per cent posted in the third quarter.

The official composite PMI, which measures sentiment among Chinese manufacturing and service sector firms, fell to 52.6 in December from 52.8 in November, the National Bureau of Statistics said.

Analysts expect growth to slow significantly in the first half of 2019 when the full impact of tariffs imposed by the United States hit the Chinese economy.

At the meeting of the Central Economic Work Conference last week,
top officials agreed to take steps to boost the economy next year, including additional tax cuts and infrastructure spending.

The signs of rapidly slowing growth also puts further pressure on the Chinese government to make concessions to end, or at least de-escalate, the trade war with the US.

The Trump administration has threatened to raise the tariff rate on US$200 billion of Chinese exports to 25 per cent from 10 per cent if a March 1 deadline for a comprehensive trade deal is not met.courtesy https://beta.scmp.com/

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