Factory activity in China has declined to its lowest level in six months in December, bolstering expectations that the government may need to take action soon to support the economy.
The National Bureau of Statistics said in a statement on Sunday that the official Purchasing Managers' Index (PMI) for the manufacturing sector dropped to 49 points, down from economists' average forecast of 49.6 points surveyed by Bloomberg, but matching the reading in June.
The non-manufacturing activity gauge, on the other hand, rose to 50.4 points from 50.2 in November, supported by expansion in the construction sector due to accelerated infrastructure investment led by the government in recent months. However, services activity remained in contraction with the main index staying at 49.3 points.
It is worth noting that a level of 50 points is the dividing line between growth and contraction.
The purchasing managers' index figures indicate further signs of economic recovery weakness in China in the final months of the year. It is also likely to increase pressure on fiscal and monetary policymakers to act urgently, after the leaders of the Asian giant pledged to maintain a supportive stance for growth in 2024.
Shing Shau-Ping, Chief Strategist at Australia and New Zealand Banking Group, said, "The weaker-than-expected PMI data showed a bigger growth momentum slowdown amid a low (activity) season and cold weather." He added, "We cannot rule out the possibility of the central bank cutting interest rates in early January."
Chao Ching-Hui, an analyst at the National Bureau of Statistics, said in a separate statement that "declining external orders, along with insufficient effective domestic demand," were the biggest problems reported by some companies in the official PMI survey. Chao also added that the textile and non-metallic products sectors did not benefit from their full capacity due to declining demand.
The weak demand and slowing confidence reflected in the contraction of consumer prices and shrinking imports. It is expected that the worst decline in China's property market will continue, which will further reduce demand for goods from furniture to household appliances.
Goldman Sachs and Morgan Stanley predict the continued decline of China's housing market.
The sub-index for new factory orders fell to 48.7 points due to weak demand, while the gauge for new export orders contracted to 45.8 points.
As for the non-manufacturing sectors, the construction activity gauge rose to 56.9 points from 55 in November, according to the National Bureau of Statistics. Some analysts expected construction momentum to remain strong as the government intensifies its efforts to build more infrastructure projects with additional bond issuances.
Some service industries, such as air transportation, housing, and home services, have lost their strength as consumers reduce travel due to cold weather, according to Chao from the National Bureau of Statistics.
