China’s manufacturing activity contracted in March at its fastest rate in almost a year, HSBC said Tuesday, suggesting worsening conditions in the world’s second-largest economy and putting pressure on leaders to further ease monetary policy.
The British bank’s preliminary purchasing managers index (PMI) came in at 49.2, it said in a statement, below the breakeven point of 50 and the weakest reading since last April, when it hit 48.1.
It also slumped from a final reading of 50.7 in February and was far below the median estimate of 50.5 in a Bloomberg survey of economists.
The index, compiled by information services provider Markit, tracks activity in China’s factories and workshops and is regarded as a barometer of the health of the Asian economic giant.
The sluggish reading “signalled a slight deterioration in the health of China’s manufacturing sector in March”, said Markit economist Annabel Fiddes in the statement.
“A renewed fall in total new business contributed to a weaker expansion of output, while companies continued to trim their workforce numbers,” she said, adding that “relatively muted client demand” had led producers to cut prices.
Liang Hong, an economist with investment bank China International Capital Corporation, noted the subindex for employment — a key consideration for macroeconomic officials — fell to its lowest level in six years.
“The pressure on the government to stabilise growth and support employment has increased,” Liang said in a report.
– More loosening –
The March PMI is likely to add to fears that Chinese growth, a key driver of the global economy, may slow further.
The economy expanded 7.4 percent last year — the slowest pace in nearly a quarter of a century — and official data earlier this month showed production, consumption and investment growth had all fallen to multi-year lows.
“The deteriorating PMI confirmed that downside risks to China’s 2015 growth have started to materialise,” Barclays’ economists said in a research note.
Julian Evans-Pritchard, an economist with research firm Capital Economics, said that the figure indicated that China’s economy “likely slowed sharply” in the first three months of the year.
“We expect the deceleration in growth to moderate in coming months as policymakers step up fiscal spending and carry out further cuts to the required reserve ratio and benchmark interest rates in order to prevent growth this year from slipping too far below their annual target,” he said.
The government has reduced its growth target for this year to “approximately seven percent”, the lowest since a similar goal in 2004.
Underlining official concerns over the economy, the central People’s Bank of China cut benchmark deposit and lending interest rates in late February for the second time in three months.
Authorities have so far avoided big-ticket incentives to bolster growth as they seek to transform the economy from decades of double-digit annual growth to a slower but more sustainable one, a stage that they have branded as the “new normal”.
But Premier Li Keqiang earlier this month signalled that more measures could be taken to prod expansion, saying that Beijing still has “a host of policy instruments at our disposal”.