China - Zero-Covid still bites
China’s PMIs for October confirm that headwinds from Zero-Covid, the property downturn and slowing global growth are still constraining the rebound from the deep lockdown slump earlier this year, despite the better than expected Q3 GDP rebound (+3.9% qoq and yoy) published last week.
China's October PMIs underline headwinds are still significant
The largest negative surprise came from the official non-manufacturing PMI, comprising the services and construction sectors, which fell by almost two points to (48.7) – below the neutral mark separating expansion from contraction (September: 50.6, consensus: 50.1). This weakness is mainly driven by services, reflecting the renewed tightening of Covid-19 related restrictions within the dynamic clearing framework of mass testing with mini lockdowns, particularly in the run-up to the CCP summit in Beijing mid-October. The official manufacturing PMI also came in weaker than expected (at 49.2), dropping back below the neutral 50 mark as well (September: 50.1, consensus: 49.8). By contrast, Caixin’s manufacturing PMI did better than expected, rising back to 49.2 (September: 48.1, consensus: 48.5), although remaining below the neutral mark. The official composite PMI (a weighted average of the indices for manufacturing and non-manufacturing output) fell back to a five-month low of 49.0 (September: 50.9). Caixin’s services and composite PMIs for October will be published on Thursday 3 November. All in all, with no major turnaround in Beijing’s strict Covid-19 policy expected any time soon, the Chinese economy is clearly not out of the woods yet and downside risks remain elevated – also see the China coverage in our October Global Monthly here and here.