CHINA’S factory activity is expected to have continued to grow in February, a Reuters poll showed on Monday (Feb 27), suggesting that the flashes of domestic demand seen since the zero-Covid policy ended are now strong enough to rekindle upstream sectors.

Domestic orders and consumption drove output higher and saw economic activity in the world’s second-largest economy swing back to growth in January, and economists expect manufacturers to have consolidated that position now that the country’s Covid-19 epidemic has “basically” ended.

The official manufacturing purchasing managers’ index (PMI) is expected to have improved to 50.5 in February, compared with 50.1 in January, according to the median forecast of 29 economists in a Reuters poll.

An index reading above 50 indicates expansion in activity on a monthly basis and a reading below indicates contraction. The official manufacturing PMI, which largely focuses on big and state-owned firms, and its survey for the services sector, will be released on Wednesday.

Despite Covid passing through the population faster than economists expected following the abandonment of the government’s strict “zero-Covid” policy in early December, factory gate prices fell in China in January, suggesting the country’s manufacturing sector was still struggling to recover.

Optimism is building, however, and Goldman Sachs wrote in a note on Sunday that it expects “a strong NBS manufacturing PMI reading of 51 in February,” owing to “continued improvements in steel demand and coal consumption.”

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

On Friday, China’s central bank announced that the domestic economy is expected to generally rebound in 2023, although the external environment remains “severe and complex.”

The People’s Bank of China also pledged to start improving social expectations and boosting confidence, with a focus on supporting the expansion of domestic demand. REUTERS