(Bloomberg) -- China’s manufacturing activity contracted in March as authorities locked down major technology and factory hubs to curb a surge in Covid cases, damaging the outlook for economic growth.
The official manufacturing purchasing managers’ index fell to 49.5, breaching the 50-mark that separates expansion from contraction for the first time in five months, data from the National Bureau of Statistics showed Thursday. That was lower than the median estimate of 49.8 in a Bloomberg survey of economists.
The non-manufacturing gauge, which measures activity in the construction and services sectors slumped to 48.4, below the consensus forecast of 50.3.
China is battling its worst outbreak since the initial flareup two years ago. Soaring case numbers prompted authorities to lock down major cities including the country’s tech and manufacturing hub Shenzhen, financial center Shanghai and automotive city Changchun this month.
The drop in both PMIs showed overall economic momentum has declined, said Zhao Qinghe, a senior statistician at the NBS. The market is expected to pick up once the outbreaks are brought under control, he said.
The benchmark CSI 300 Index dropped as much as 0.8% after the release of the data, with industrials and technology shares leading the decline.
Areas covering roughly 30% of China’s gross domestic product are affected by the outbreaks, Goldman Sachs Group Inc (NYSE:GS). estimates, with the economic costs of the lockdowns likely amounting to at least $46 billion a month, or 3.1% of GDP, according to a researcher from Chinese University of Hong Kong. Several economists have already downgraded their growth forecasts for the first half of the year as lockdowns were expanded.
Read More: China’s Growth Forecasts Cut as Covid Lockdowns Spread
China’s Premier Li Keqiang reiterated Wednesday that China will stick to its full-year growth target despite new challenges and increased downward pressures on growth. He called on the nation to prioritize stable growth and to draft contingency plans to deal with possible greater uncertainties at a regular State Council meeting. Policies to stabilize growth should be rolled out as early as possible, while measures that would dampen market expectations should be avoided, he said.
Shenzhen Lockdown
Companies like Apple Inc (NASDAQ:AAPL). supplier Foxconn temporarily halted production in Shenzhen during a week-long lockdown of the city. In Changchun, an industrial hub that accounted for about 11% of China’s total annual car output in 2020, automakers like Toyota Motor (NYSE:TM) Corp. were forced to shut. Some businesses resumed production by adopting a so-called closed loop system in which workers were kept at factory locations and tested regularly.
The disruptions affected “the stability of manufacturing supply chain,” Zhao said, noting the index measuring delivery time of suppliers fell to 46.5, the lowest since February 2020.
The index measuring new export orders dropped further into contraction, falling to 47.2 in March from 49 in the previous month. Orders were reduced or canceled at some companies due to the “recent escalation in geopolitical conflicts,” the NBS said.
Employment was also affected during the month, with the sub-index for manufacturing jobs dropping to 48.6 in March from 49.2 in February.
“Some companies surveyed said due to the Covid impact, there was insufficient employees working in their posts, logistics were clogged, and delivery cycle was extended,” Zhao said.
In-person services sectors like restaurants and retail shops were hit hard by the renewed lockdowns and tightened social distancing measures, dragging the official non-manufacturing index lower. Economists say the damage to consumption could be deeper and more long-lasting than to production.
The world’s second-largest economy was already struggling even before the current wave of outbreaks following a slump in the property market and weakness in consumer spending. The government has pledged more monetary and fiscal stimulus to help bolster the economy and meet a growth target of “around 5.5%” for the year.
(Updates with comments from NBS starting in fifth paragraph.)
©2022 Bloomberg L.P.