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27.01.2025

China’s manufacturing activity contracts in January amid holiday slowdown

China’s manufacturing activity unexpectedly contracted in January, reversing three months of growth and falling below the 50-point threshold that separates expansion from contraction. The official manufacturing PMI dropped to 49.1 from December’s 50.1, missing the forecast of 50.1, the National Bureau of Statistics (NBS) reported on Monday.

The contraction is partly attributed to the seasonal slowdown ahead of the Lunar New Year, which falls on January 29 this year, as many workers return home. Despite the weaker PMI, demand indicators remain positive, with stronger price sub-index readings and growing business confidence. A gauge of manufacturers’ production and operation outlook rose to 55.3, signaling optimism after the holidays.

China’s non-manufacturing PMI, which tracks services and construction activity, also weakened, dropping to 50.2 from 52.2 in December. While services PMI slightly expanded to 50.3 due to holiday-driven demand in sectors like public transportation, hospitality, and food services, the construction PMI declined to 49.3, reflecting a pre-festival slowdown.

The composite PMI, combining manufacturing and services, stood at 50.1, down from December’s 52.2.

Meanwhile, profits at China’s industrial firms fell 3.3% in 2024, extending a 4.7% decline recorded during the January-November period. However, December saw a surprising 11% year-on-year profit growth, rebounding from a 7.3% drop in November.

Economists noted that policymakers face challenges in sustaining economic recovery, with structural headwinds and external pressures such as U.S. tariff threats under the new administration. Analysts expect stronger fiscal stimulus and front-loaded deficit spending in early 2025 to bolster growth.

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