China's Factory Activity Likely To Contract In January

China's manufacturing activity in January likely shrank for the fourth straight month though at a slower pace than in December, a Reuters poll showed, indicating the country's sprawling sector was still struggling to regain momentum at the start of 2024.

The official purchasing managers' index (PMI) likely nudged up to 49.2 in January from December's 49, according to the median forecast of 35 economists in a poll. The 50-point mark separates growth from contraction.

The National Bureau of Statistics will release the PMI data on Wednesday, providing the first official snapshot of how the world's No.2 economy has started off the new year after a shakier-than-expected post-Covid recovery.

To spur growth, China's central bank governor Pan Gongsheng unexpectedly announced a cut to banks' reserve requirement ratio at a press conference last week, as the challenges of a property downturn, local government debt risks, deflationary pressures and weak global demand weigh on the economy.

Only one of 35 economists surveyed in the poll expected factory activity to expand in January, with a forecast of 50.5.

But Goldman Sachs said in a note on Friday that NBS manufacturing PMI tends to decline in January going by seasonal patterns as suggested by historical data during the years when the Lunar New Year falls in late January or in February. It expects the index to moderate to 48.8 from 49 in December.

The private Caixin factory survey, which will be issued on Thursday, is expected to show factory activity slowed to 50.6 from 50.8 in December, according to the median forecast of 21 economists polled by Reuters.

Compounding the pain for some Chinese exporters, disruptions to Red Sea freight due to drone attacks on shipping by Houthi rebels have added to supply snarls for factories ahead of the Lunar New Year that starts on 10 February this year.