China in economic stagnation worries

The National Bureau of Statistics of China (NBS) released economic activity numbers that showed worrying signs of slow economic growth during the weekend. Negative growth both in the manufacturing and non-manufacturing sectors is now becoming a worrying trend. Economists think that the country might be enduring stagnation when the world is hoping for a recovery.

 The NBS Manufacturing Purchasing Managers’ Index (PMI) fell to 49.2 in October 2021 from 49.6 a month earlier. This was below market expectations of 49.7. The non-manufacturing PMI for the same month was down to 52.4, coming short of September’s 53.2. However, the non-manufacturing PMI indicates a modest recovery for the second month, regardless of an upsurge in covid-19 infections.

The manufacturing PMI measures manufacturing activity, while the non-manufacturing PMI measures activity within the services sector. From the numbers observed, it is clear that the manufacturing industry is the one that is facing more challenges for a number of reasons. For the second month, it has been under the 50-point mark that acts as a separation between growth and stagnation.

Both output and new orders contracted as the surge in covid-19 added to other problems affecting the manufacturing sector.

Manufacturing activity is dependent on inputs such as energy and other raw materials. During the period observed, China faced challenges regarding power supply and high costs of raw materials. Input prices have been increasing because of rising commodity costs.

The high cost of raw materials could lead to increasing costs of final products in the near future. This could be inflationary, even though the country’s inflation has been slowly easing from this year’s peak experienced at the beginning of the second quarter.