China factory activity rebounds in March
China’s factory activity expanded in March, ending two months of contraction, the government said Tuesday, but analysts say prolonged impacts of the Iran war could weigh on growth.
The official manufacturing purchasing managers index rose to 50.4 from 49 in February, the National Bureau of Statistics reported, beating economists’ expectations and notching the strongest reading in a year. PMI is measured on a scale of 0 to 100 and a reading above 50 indicates expansion.
While the latest official data covered a period after the Iran war began on Feb. 28, analysts say the impacts of surging energy costs have not yet been fully seen. “So far supply disruptions have not occurred in a material way,” said Jacqueline Rong, Chief China Economist, BNP Paribas, a French bank.
A years-long property sector slump in China has also weighed on economic growth and weakened domestic consumption and investment demand in China, the world’s second-largest economy after the US. To help drive its economy, China has been reliant on growing exports, especially to regions such as Southeast Asia and Europe, which propelled its trade surplus last year to a record $1.2 trillion despite higher US tariffs.
China’s export engine could hit headwinds as the Iran war drive up energy costs and disrupts supply chains, with most maritime traffic blocked from passing the Strait of Hormuz, through which roughly a fifth of the world’s oil normally passes.
The extent of the impact will depend on how long the energy flows from the Middle East are cut off, said BNP Paribas’ Rong. “If it is months, rather than weeks, then the supply disruptions, not just from oil, but also from the shortage of many chemical products - such as rare gases - would manifest itself in disrupting industrial production and services,” she said. (AP )
