The Chinese yuan strengthened against its US counterpart on Thursday, despite the latest economic gauges contracting for the first time since October 2021. The recent numbers suggest that the world’s second-largest economy is getting hammered by the COVID-19 outbreaks that have resulted in widespread lockdowns and other public health restrictions.
On Wednesday, the National Bureau of Statistics’ (NBS) purchasing managers’ index (PMI) tumbled to 49.5 in March, down from 50.2 in February – anything below 50 indicates contraction. This also fell short of market estimates of 49.9.
The non-manufacturing PMI weakened to 48.4, down from 51.6 in the previous month. The NBS General PMI fell to 48.8 this month, down from 51.2 in February.
NBS data show that much of the weakness was felt across the board, with output, buying levels, new orders, export orders, and employment levels falling dramatically. Business sentiment also weakened to its lowest level in a few months.
The private-sector Caixin PMI reading will be released later Thursday.
In response to the thousands of new COVID-19 infections, the Chinese government locked down several cities nationwide, including Shanghai, the nation’s financial hub and largest city. This is expected to further exacerbate the global supply chain crisis.
Over the last month, places like Guangzhou and and Shenzhen have had to be under lockdown, causing many factories and businesses with American and European corporate clients to halt operations.
Meanwhile, China is also facing the threat of US-led sanctions on Russia with the aim to apply pressure on Beijing. It is unclear if this would dissuade the Chinese leadership from cozying up to Moscow.
Whatever the case, China is facing a myriad of threats to the economy. This could erode the fragile economic recovery in the coming months, with some market analysts anticipating a stagnating economy.
The USD/CNY currency pair tumbled 0.12% to 6.3399, from an opening of 6.3477, at 12:51 GMT on Thursday. The EUR/CNY dropped 0.67% to 7.0376, from an opening of 7.0831.