China Factory Activity Weakest on Record as Virus Hits Output

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.

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 Economicsestimating Chinese factories were operating at60% to 70% of capacity this week.

The services sector also took a hard blow, as most businesses rely on human interaction, which was constrained by tight control of human mobility within and across cities.

“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 theirestimates for China’s expansion this quarter, with the medianforecast 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.

— With assistance by Lin Zhu

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