China's economic activity saw slowest growth since 2020 due to Covid: Report

As the virus swept through major cities, forcing people to stay at home and businesses to close, China abruptly reversed its Covid Zero policy, causing economic activity, and its service sector, in particular, to grow at the slowest rate since February 2020, reported Bloomberg.

The official manufacturing purchasing managers index reportedly decreased from 48 in November to 47 this month, according to data released on Saturday by the National Bureau of Statistics. That was worse than the economist's estimates of 47.8 from a survey conducted by Bloomberg.

According to the report, the non-manufacturing index, which gauges activity in the services and construction industries, dropped from 46.7 in November to 41.6 in December, underperforming the consensus forecast of 45. Anything above 50 indicates expansion, while anything below 50 indicates contraction. The two measurements were at their lowest point since February 2020.

A component of the non-manufacturing index called the services PMI dropped from 45.1 in November to 39.4 in December. That represents the lowest reading since February 2020 and the contraction for the fourth straight month.

The December data corresponds to the month that the second-largest economy in the world abruptly abandoned its long-standing Covid Zero policy. Through the first quarter of 2023, Covid's continued spread could cause more economic problems, with a likely travel rush during the upcoming Lunar New Year holiday aggravating the situation.

The report stated that before the change from Covid Zero, China's economy was in trouble because restrictions to stop the spread of infection slowed down economic growth and kept the nation cut off from the rest of the world. The economy is expected to grow by just 3% in 2022 due to a persistent real estate market downturn, weak consumer demand, and waning foreign demand for Chinese goods.

High-frequency data for December indicated that economic activity had fallen off a precipice as people stayed at home and avoided stores due to escalating cases, and factory output had been restricted. Even some government operations were hampered.

“Manufacturing and consumption both declined as the Covid situation brought a relatively big impact to enterprises, personnel on duty, and logistics,” the statistics bureau said in a statement.

In December, the manufacturing PMI gauges tracking output, new orders, and employment all shrank more quickly than in November. A sub-index that tracks suppliers' delivery times decreased, even more, signalling supply disruptions.