Data released in China show that the slowdown momentum in the economy continues. Official and private sector manufacturing PMI data released at the weekend decreased to 50.1 and 49.1 levels, respectively. Private sector data seems more important as it shows that the contraction momentum of the economy is spreading to the bottom in terms of weighting SMEs even more. It is thought that stopping the production of some factories to reduce air pollution before the Winter Olympics may also be effective in the monthly slowdown. As of today, due to the Year of the Tiger, China is on holiday.
We observe the cooling effect of the effects of the Omicron wave on the growth, supply chain, slowdown in foreign demand and price outlook on the economy through the increasing Covid cases, the tightening of the measures, the real estate market in crisis and the decrease in the activities of SMEs. There is also a partial slowdown in the service and construction sectors due to the impact of Covid and the difficulty of market conditions.
When we consider the synchronized impact of supply chains, it appears that this will take longer to recover. While the current Omicron variant is creating new uncertainties, COVID-19 is a major factor in the continued disruption, it's not the only factor. There are also significant capacity, logistical and workforce challenges beyond the pandemic. Demand G4 appears to have stabilized, but production is being disrupted further as COVID-19 conditions worsen. This situation also affects raw material price inflation.
The PBOC will continue to reduce interest rates in order to ease the credit conditions of small-scale companies and to support growth through this. China's expanded liquidity conditions deepen the divergence with the Fed. The depreciation of the yuan will not help the strained trade relations between China and the United States.
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