Daily Management Review

Chinese Factory March Output Post Surprise Expansion


Chinese Factory March Output Post Surprise Expansion
Following a collapse the factory activity in China in February, there has been a surprise expansion of the activity in the country for the month of March. However analysts cautioned that sustained recovery in the near term for the economy cannot be assured because of the severe drop in global demand because of the coronavirus pandemic which threatens ot push the global economy into a recession.
Compared to the record low of 35.7 in February, the official Purchasing Managers' Index (PMI) in China rose to 52 in March, according to the data available from the National Bureau of Statistics (NBS) on Tuesday. The March number was above the 50-point mark which is the point which denotes monthly growth,
According to the average value of the expected PMI according to a pool of analysts polled by Reuters the March number was expected at 45.0.
The record low base number for the PMI in February was one of the reasons for the surprise growth, the NBS said, but also cautioned that no signal of stabilisation in economic activity was reflected in the numbers.
Many analysts also seemed to tow the same line and warned that the Chinese economy will be facing further struggles as well as for Chinese businesses as well as for the broader economy because of the rapid spread of the coronavirus pandemic all across the world. That is coupled with the unprecedented lockdowns in a number of countries to prevent the spread of the virus pandemic as well as the global economy going into an almost certain recession in 2020.
"This does not mean that output is now back to its pre-virus trend. Instead, it simply suggests that economic activity improved modestly relative to February's dismal showing, but remains well below pre-virus levels," said Julian Evans-Pritchard, senior China economist at Capital Economics, in a note to clients.
Numbers from two of Asia's main export engines, Japan and South Korea, underlined the sweeping impact on production of the coronavirus pandemic. After growing at a very slow rate in February in Japan, it is expected that the industrial output of the country will slump further in March. The production output contracted the most in 11 years in South Korea.
A significant contraction in China's first quarter gross domestic product is already being predicted by economists and some economists and experts are of the opinion that the GDP slump for the quarter will be 9 per cent or more year on year – which will also be the first contraction in three decades.
Lack of market demand and not production shutdowns forced by Chinese authorities because of the coronavirus pandemic, due to weak export orders, rising stockpile and soft prices has become the biggest challenge for Chinese manufacturers, said Nie Wen, economist at Shanghai-based Hwabao Trust.
"The biggest problem facing China's economy in the second quarter is the slumping foreign demand," said Nie. “Authorities may roll out more policies on top of the billions of dollars pumped into the financial system since February to boost domestic consumption and tide over the shrinking overseas demand,” Nie added.