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China’s factory activity growth stalls in January as COVID outbreaks hit

China’s factory activity growth likely stalled in January as a resurgence of local COVID-19 cases ahead of the Winter Olympics curbed output and demand, piling pressure on policymakers to roll out more support to stabilise an already faltering economy.

The official manufacturing Purchasing Manager’s Index (PMI) is expected to ease to 50 in January, from 50.3 in December, according to the median forecast of 17 economists polled by Reuters on Friday. A reading below 50 indicates contraction from the previous month, above 50 expansion.

Nomura analysts expect the PMI to have moderated this month, mainly weighed down by a combination of strict antipollution measures to ensure blue skies for the upcoming Winter Olympics, contracting demand due to the COVID-19 Omicron wave, a property downturn and slowing export growth.

They also expected a bigger fallback in the services sector PMI.

“Despite the raft of policy easing measures including a policy rate cut, we believe growth will likely slow further in Q1 and that Beijing’s pain threshold has almost been reached,” Nomura said in a note on Thursday.

China’s central bank has already started cutting interest rates and pumping more cash into the financial system to bring borrowing costs down, and further modest easing steps are expected in coming weeks.

A surge of COVID-19 cases since late December in the manufacturing hub of Xian forced many auto and chip makers to shut operations, although production has gradually returned to normal as the city emerged from a lockdown.

Output in Tianjin, which battled an outbreak of the highly transmissible Omicron variant, had also been affected.

The International Monetary Fund on Wednesday cut the 2022 growth forecast to 4.8%, from 5.6% previously, reflecting the impact of property sector woes and the hit to consumption from strict COVID-19 curbs.

The world’s second-largest economy grew 4.0% in the fourth quarter from a year earlier, marking its weakest expansion in one-and-a-half years.

The official PMI, which largely focuses on big and state-owned firms, and its sister survey for the services sector, will be released on Sunday.

The private Caixin manufacturing PMI will also published on the same day. Analysts expect the headline reading will edge down to 50.4 from 50.9 the previous month.
Source: Reuters (Reporting by Stella Qiu and Ryan Woo; Editing by Simon Cameron-Moore)

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