China's economy falters on softening demand

China’s economy continued to come under pressure last month, official data showed on Monday, as rolling Covid-19 lockdowns and weakening international demand weighed heavily.

According to the National Bureau of Statistics, the official manufacturing purchasing managers’ index fell to 49.2 in October from 50.1 a month previously, below forecasts for around 50.0.

Output fell to 49.6, from 51.5, while new orders slipped to 48.1 from 49.8.

The non-manufacturing PMI also fell, to 48.7 from 50.6, driven by falls in components, services and construction. Consensus had been for 50.1. A reading above 50 indicates growth while a reading below indicates contraction.

Beijing is continuing to pursue a policy of zero Covid, and the resulting stringent lockdowns have hit both production and domestic demand. Global demand is also slowing amid the weakening economic climate.

Pantheon Macroeconomics noted: "The impact of more stringent Covid restrictions during the 20th Party Congress outweighed the lift from infrastructure stimulus: the official manufacturing PMI saw slippages in output, new orders and order backlog.

"The fall in current output can be put down to temporary factors. But the drop in new orders indicates sustained weakness and that the stimulus has not yet filtered down to manufacturing sectors."

Iris Pang, chief economist, Greater China, at ING, said: "October looks to have been a weak month for the economy, and November looks as if it will be no better. Compounding this is the fact that Covid cases are climbing again, and it is possible that we will see further small-scale lockdowns in China.

"We also expect a contraction in export demand in the coming months, reflecting the weakening external environment."