China’s manufacturing sector unexpectedly contracted in August as power cuts and temporary factory closures due to the heatwave dampened production and sales, survey results from S&P Global showed on Thursday.
The Caixin manufacturing Purchasing Managers’ Index fell to 49.5 in August from 50.4 in July.
The reading fell below the neutral 50.0 mark for the first time since May. The score was forecast to fall to 50.2.
New orders logged the first drop in three months due to subdued market conditions, power cuts and lingering COVID-19 impacts. Foreign demand also fell back into contraction. At the same time, production growth also slowed at a marginal pace.
Staffing levels at manufacturers fell for the fifth month in a row as firms adopted downsizing policies due to lower intakes of new work. Data showed that backlogs of work were stable in August, following two months of decline.
Average input costs dropped for the first time since May 2020. Although moderate, the rate of reduction was the quickest seen since the start of 2016. To boost competitiveness and attract sales, prices charged by manufacturers dropped at the fastest rate since May.
Although Chinese manufacturing firms were generally confident that output would rise over the next year, the level of sentiment was unchanged from July.
Right now, the economy is still slowly recovering from a widespread outbreak of Covid-19 in the first half of the year, Wang Zhe, a senior economist at Caixin Insight Group said. Yet, local flare-ups and the punishing heat wave have disrupted the trend and created new downward pressures, posing a threat to the recovery.
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