China factory sector jolts by shrinking in January

Sat Jan 31, 2015 11:47pm EST
 
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By Koh Gui Qing

BEIJING (Reuters) - China's factory sector unexpectedly shrank for the first time in nearly 2-1/2 years in January and firms see more gloom ahead, an official survey showed, raising expectations that policymakers will take more action to forestall a sharper slowdown.

The official Purchasing Managers' Index (PMI) fell to 49.8 in January, the National Bureau of Statistics said on Sunday, a low last seen in September 2012 and a whisker below the 50-point level that separates growth from contraction on a monthly basis.

The December level was 50.1, and a Reuters poll saw a better result, 50.2 for January. Only one of 11 economists in the poll predicted a January contraction.

Most of the PMI indexes "showed a downward trend, indicating that current economic growth is still in a downtrend," said Zhang Liqun, an economist at the Development Research Center, a state think-tank.

Some economists said the January reading was especially downbeat as it suggested that factories did not enjoy a usual spike in business before China's annual Spring Festival holiday, which falls in mid-February this year.

The poor January official PMI fueled bets that more monetary policy loosening was in store in the world's second-largest economy.

"China still needs decent growth to add 100 million new jobs this year, plus China is entering a rapid disinflation process," ANZ economists said in a note to clients.

"We (think) the People's Bank of China will cut the reserve requirement ratio by 50 basis points and cut the deposit rate by 25 basis points in the first quarter," they said.   Continued...

 
An employee works at the production line of an automobile factory in Dalian, Liaoning province, October 18, 2014.  REUTERS/Stringer