Chart of the Week: Further weakness in China’s economy in January

China’s GDP growth slowed to just 4% on a year-on-year basis in the fourth quarter, affected by weakness in the real estate sector, power outages, and the government’s zero-tolerance response to fresh COVID-19 outbreaks. Purchasing managers’ surveys suggest that this softness in activity continued in January, despite recent policy easing by the authorities. The official NBS Manufacturing PMI fell to just 50.1 from 50.3 previously – only slightly above the 50 level that separates expansion from contraction. Its non-manufacturing counterpart declined to 51.1 from 52.7. The Caixin Manufacturing PMI also fell from 50.9 to 49.1 – its weakest since February 2020. Amid ongoing weakness in activity and with the all-important 20^th National Party Congress occurring later this year, we expect further policy easing. Nevertheless, the Chinese economy will face a number of major downside risks in 2022.

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