China’s factory activity grew for the third straight month in March, while the construction and services sectors expanded at the fastest pace in 12 years, indicating that the country’s economic recovery is gaining a firmer footing, official data showed. They imply a decent GDP growth in the first quarter of the year, which may further accelerate in the second one. But they also underscored the need to maintain macro-economic policy support given the continuing pressures on employment and risks of falling external demand. The official purchasing managers index (PMI) for China’s manufacturing sector stood at 51.9 in March, down from 52.6 in February, but marking the second-highest level in the past two years, the National Bureau of Statistics (NBS) said. The reading has stayed above the 50-point mark, which separates growth from contraction, for the third month in a row, pointing to the continuous recovery of factory activity.
Meanwhile, activity in the construction and services sectors expanded at the fastest pace in 12 years as the non-manufacturing PMI for March came in at 58.2, up from 56.3 a month earlier and reaching the highest level since May 2011. “The economy continued to stabilize and pick up,” said Zhao Qinghe, Senior NBS Statistician, adding that production and orders in the manufacturing sector further recovered while reviving consumer spending, and business travel boosted relevant segments of the services sector.
With the PMI readings pointing to an overall steady recovery, Wen Bin, Chief Economist at China Minsheng Bank, said China’s first-quarter economic growth may stand at about 4.5% year-on-year and further pick up to 9% in the second quarter, versus a 2.9% growth in the fourth quarter of 2022. Wen’s estimate echoed the World Bank’s latest forecast, which has upgraded China’s economic growth projection to 5.1% this year, compared with 4.3% in January, according to the bank’s latest East Asia and Pacific Economic Update. Experts said China’s consumption-driven economic recovery is expected to keep the PMI mostly in the expansionary territory in the coming months, with non-manufacturing activity likely to continue outperforming the manufacturing sector.
David Chao, Global Market Strategist for Invesco Asia-Pacific, excluding Japan, said China’s consumption rebound will further unfold in a steady manner going forward as consumers gradually spend the large amount of deposits they accumulated during the pandemic, leading the way for China’s economic recovery. Nevertheless, the NBS said the sub-index of employment of both the manufacturing and non-manufacturing sectors contracted in March, indicating that the labor market may remain soft. Moreover, manufacturing activity at small and medium-sized firms (SMEs) moderated at a faster pace than large ones in March. “Enterprises still face prominent problems such as insufficient market demand, tight cash flow and high operating costs,” said Zhao at the NBS.
Macro-economic policy should continue focusing on growth stabilization in the second quarter, with monetary policy still having the scope to deliver targeted support, said Zheng Houcheng, Director of the Yingda Securities Research Institute. Experts particularly called for policy efforts to expand domestic demand and ease any potential difficulties facing exporters as external demand could weaken with global growth losing steam, the China Daily reports.
