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In a surprising turn of events, China's factory activity has taken a downturn in October, suggesting that the country's economic recovery is still fragile and in need of support.
The official manufacturing purchasing managers index, released by the National Bureau of Statistics, has fallen from 50.2 in September to 49.5 this month, a decline that wasn't anticipated by economists who, in a Bloomberg survey, had predicted a figure of 50.2.
Simultaneously, the non-manufacturing gauge, which assesses activity in the construction and services sectors, has also decreased from 51.7 to 50.6, falling short of the expected 52. The key threshold of 50 separates growth from contraction.
While it's important to note that the data may be influenced by seasonal factors, primarily an eight-day public holiday at the start of October, it also underscores the persistent weakness in market demand. Both the new orders index under the manufacturing and non-manufacturing PMIs have dipped below the critical 50-point mark, indicating a contraction in demand.
Commenting on this, Michelle Lam, a Greater China economist at Societe Generale, stated, "Part of the decline was due to seasonality, but it was still somewhat disappointing after taking into account that. It shows that the recovery remains fragile, and the reopening recovery could be coming to an end after the holiday season."
Investors have been closely monitoring whether China's recent stimulus measures are effectively bolstering the economy, which has faced challenges this year due to weak consumer and business confidence, as well as an ongoing property crisis. In response, the government has unveiled additional measures to support the economy, such as issuing extra sovereign debt and raising the budget deficit ratio.
Raymond Yeung, the chief economist for Greater China at the Australia & New Zealand Banking Group, remarked, "Given the downside surprise, the authorities will still need to deliver growth-supportive policy." This suggests that further efforts may be required to stabilize and stimulate China's economic recovery in the face of these unexpected contractions in the manufacturing and services sectors.
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