(Bloomberg) --
Activity in China’s manufacturing sector contracted sharply in February, with the official gauge hitting the lowest level on record, highlighting the devastating impact of the coronavirus on the economy and raising the risk of a worsening global stock rout.
The manufacturing purchasing managers’ index plunged to 35.7 in February from 50 the previous month, according to data released by the National Bureau of Statistics on Saturday, well below the median estimate of economists of 45.The non-manufacturing gauge also dropped to a record 29.6, compared with 54.1 in January. Values below 50 denote worsening conditions.
The coronavirus outbreak that started in China is spreading to multiple continents, with the threat of a pandemic tipping U.S. stocks Friday into the worst rout in any week since October 2008. As the world’s largest exporter is already operating far below capacity as millions of workers and consumers remain quarantined, the data underline the scale of the task to return output to normal at a time when the global economy is under threat.
“Most people were comparing the impact of the coronavirus with that of SARS, but I think it is on par with that of the financial crisis in 2008,” said Larry Hu, head of China economic research at Macquarie Securities Ltd. “The shock brought by the coronavirus is huge and the situation looks really bad in the short-term,” although there will be a rebound in March and a significant recovery in the second quarter, he said.
The drop in the manufacturing gauge in February was largely due to virus control measures that have made it hard for workers to travel back after Lunar New Year, and left factory owners with limited raw materials to restart production. That said, progress has been made in recent weeks, with Bloomberg Economics estimating Chinese factories were operating at 60% to 70% of capacity this week.
pic.twitter.com/FrDKmJGaJN
— Tom Orlik (@TomOrlik) February 29, 2020
As of Feb. 25, the work resumption rate at mid- and large-enterprises in the PMI survey was 78.9%, and was 85.6% at mid- and large-scale manufacturing companies, according to an NBS statement.
The services sector has taken a hard blow as most businesses rely on human interaction, which is constrained by tight control of people mobility within and across cities. The indexes for construction and services both plumbed record lows in data back to 2012.
What Bloomberg’s Economists Say...
“The data confirm the worse fears about a juddering halt in China’s economy in the first quarter, with significant spillovers to the region and the world.”
The PMI should recover a little in March, but the damage will be far from being unwound.
-- Chang Shu, David Qu, Tom Orlik
See here for full note
“We expect year-on-year growth in all activity data to be negative in January-February,” wrote Lu Ting, chief China economist at Nomura International Ltd, prior to the data release. “Business resumptions have been disappointingly slow.”
The virus outbreak has prompted economists to scale back their estimates for China’s expansion this quarter, with the median forecast at 4.3%. Analysts are split on whether the economy will suffer a short-term slide that’s swiftly reversed as the virus is brought under control or a longer-lasting slump.
(Updates with comment and more details throughout.)
To contact Bloomberg News staff for this story: Lin Zhu in Beijing at lzhu243@bloomberg.net
To contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, James Mayger, Shamim Adam
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