China’s production struck amid covid outbreak, power outages

Power shortages caused by record heatwaves have hit hard China’s manufacturing sector, causing activity to remain in contraction and the outlook to remain bleak. The official manufacturing purchasing managers’ index (PMI) rose to 49.4, up from 49 in July, according to the National Bureau of Statistics (NBS) on Wednesday. However, for a second consecutive month it stayed below the 50-mark that separates growth from contraction on a monthly basis. China’s manufacturing PMI has been in contraction territory for five out of the past six months, having briefly hit 50.2 in June, whereas the official non-manufacturing PMI, which measures business sentiment in the services and construction sectors, fell to 52.6 from 53.8 in July.

Within the official non-manufacturing PMI, the construction subindex fell to 56.5 in August from 59.2 in July, while the service subindex fell from 52.8 to 51.9. China’s economy is slowing as a result of its strict coronavirus controls, downward pressure on the housing sector, and power shortages in Sichuan Province. Moreover, growth forecasts for China this year were slashed by Standard Chartered, Goldman Sachs, and Natixis earlier this month. 

“The official PMIs show a further loss in economic momentum this month as the reopening boost waned and the property downturn deepened. We continue to think the economy will struggle to make much headway during the coming.