China’s economy stalled amid COVID-19 pandemic chaos

China’s economy stalled this month since the country struggled to stabilize the pandemic situation and supply bottlenecks. The slowdown in the manufacturing sector shows that the country’s economy is still not in the recovery phase.

An official survey revealed that China’s factory activity grew at a slower pace. It dropped to 50.1 in August from 50.4 in July. That was just above the 50-point mark, showing expansion rather than contraction. However, it is its slowest rate of growth since the start of the COVID-19 pandemic. 

The growth rate is still the slowest since the beginning of the pandemic when COVID-19 hit China and forced the government to shut down more than half the country to fight the coronavirus crisis.

A private survey of factory activity released Wednesday also showed that the Caixin manufacturing Purchasing Managers’ Index (PMI) fell to 49.2 in August. The result was below than forecasted 50.2 by the analysts polled by Reuters. New export orders are out for the first time since February. Furthermore, the factories laid off more workers than they hired. A sub-index for production dropped to 47.4, the slowest pace of expansion since February 2020.

The central bank is likely to cut the Reserve Requirement Ratio later this year

As we know, China coped with the pandemic better than many other countries. It was the first country that witnessed growth in 2020, while others contracted. But today’s drop in PMI index is due to the spread of the delta Coronavirus variant in late July and August. The worst coronavirus outbreak forced Beijing and many other cities to take dramatic measures in order to stop new cases. Notably, the cities announced travel restrictions and lockdowns.

Julian Evans-Pritchard, a senior China economist at Capital Economics, wrote in a Tuesday research note that China’s economy slowed in August due to the pandemic restrictions had an important impact on services activity. Meanwhile, the non-manufacturing PMI was dropped as consumers became more cautious as the renewed COVID-19 variant hit the world. Additionally, companies say that Covid-19 lockdowns had reduced demand and provoked challenges and difficulties.

The central bank is expected to cut the Reserve Requirement Ratio later this year. Analysts say that this would support the growth. 

The clampdowns — especially in tech and education — are affecting both employment fears in those affected and broader consumer confidence as concerns of wider interventions grow.