China factory output rebounds on zero-Covid relaxation
China’s factory activity expanded in January after months of contraction, official data showed Tuesday, as the world’s second-largest economy stirs back to life after Beijing ended strict Covid curbs.
The Asian giant posted just three percent growth last year as its economy was hammered by stringent lockdowns and a deepening crisis in the key property sector.
But it is now showing signs of a rebound, with a key gauge of factory output rising this month and the International Monetary Fund (IMF) upgrading its 2023 growth forecast to 5.2 percent.
Pandemic prevention measures have “entered a new stage” that is allowing “a gradual return” to normal life, National Bureau of Statistics (NBS) statistician Zhao Qinghe said in a statement.
He added that the official manufacturing purchasing managers’ index (PMI) rose to 50.1 this month, from 47.0 in December — the first time since September the index has been above the 50 point mark that indicates growth.
The non-manufacturing PMI, which includes the services and construction sector, rose to 54.4 in January, well above the 52 points forecast by economists surveyed by Bloomberg.
Authorities have said the soaring virus case numbers that accompanied China’s reopening have now passed their peak, with a travel surge prompted by the country’s biggest Lunar New Year holiday in years offering a much-needed boost to business.
“The official PMIs add to evidence of a rapid rebound in economic activity this month as disruption from the reopening wave faded,” Sheana Yue, China economist at Capital Economics, said in a note.
“More shoppers returned to the street boosting services activity while easing labour shortages supported industry,” Yue said.
“And with zero-Covid in the rear-view mirror, the recovery should remain robust in the near-term.”
Adding to the good news, IMF chief economist Pierre-Olivier Gourinchas told reporters that pent-up demand accumulated during three years of strict pandemic controls would feed into a fast rebound in the country’s economic activity.
The country has in the past contributed up to 40 percent of global growth, IMF chief Kristalina Georgieva previously noted.
But deep-seated issues in China’s economy remain, with problems in the property industry still weighing on growth.
The sector, which along with construction accounts for more than a quarter of China’s GDP, has been hit hard since Beijing started cracking down on excessive borrowing and rampant speculation in 2020.
“Fundamentally, Beijing appears unwilling to do much more beyond lifting zero-Covid to buoy growth,” Houze Song, a fellow at the MacroPolo think tank, said.
“We believe the economic rebound will be most impressive in (the first quarter of 2023) and then peter out later this year,” they added.