China’s factories were dealt a devastating blow in February as the coronavirus epidemic triggered the sharpest contraction in activity on record, a private survey showed on Monday, with the health crisis paralyzing large parts of the economy.
The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) tumbled to 40.3 last month, the lowest level since the survey began in 2004, and down sharply from the 51.1 reading in January as well as the 50-mark that separates growth from contraction.
The headline number was well off a Reuters poll forecast at 45.7 and even worse than the depths of the financial crisis in 2008-09, underlining the crippling effects of the virus across the country where authorities have imposed tough travel curbs and public health measures to contain the outbreak.
The findings, which focus mostly on small and export-oriented businesses, were backed by an equally grim official survey released on Saturday, which showed the steepest contraction on record.
Both the official and private surveys provide the first official snapshot of the state of China’s economy since the outbreak of the coronavirus epidemic which has killed almost 3,000 people in mainland China and infected about 80,000. The virus has also spread rapidly to dozens of countries.
“China’s manufacturing economy was impacted by the epidemic last month. The supply and demand sides both weakened, supply chains became stagnant, and there was a big backlog of previous orders,” Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, said in comments on the survey.
The survey showed factory production and new orders collapsing to the worst levels on record, while employment also took a heavy blow. There was no respite for exporters either, with new export orders sinking at one of the sharpest rates in the series history.
The output gauge dived to 28.6 last month, from 52 in January, while that for new business plummeted to 34.9, from 51.9.
The results underlined fears among global health authorities, policymakers and investors of a potential pandemic and its debilitating impact on the global economy. The anxiety sent financial markets into a tailspin last week with trillions of dollars wiped out of stocks.
In response to signs of the deepening economic damage, Beijing has rolled out a steady stream of support measures to help businesses stay afloat, especially small enterprises which are facing a severe cash crunch but are a key source of employment.
China’s central bank cut the benchmark lending rate last month to help lower financing costs and has said it would ensure ample liquidity through targeted reductions in banks’ reserve requirement ratios.
Those support measures have buoyed business confidence, the private survey found, with the degree of optimism reaching a five year high.
But in the short run, analysts expect the epidemic to deal a sharp blow to growth with many forecasting a severe downturn in the first quarter.
Travel restrictions also affected the supply of labor, with firms struggling to fill roles in February, the survey showed, with factories shedding jobs at the quickest rate in the series history.
Economic growth in China slowed markedly to 6.1% last year, the weakest pace in nearly three decades, amid a bruising trade war with the U.S and despite Beijing’s stimulus to boost sluggish investment and demand. (Reporting by Stella Qiu and Ryan Woo Editing by Shri Navaratnam)