China's Factory Activity Likely Contraction in October

BEIJING (Reuters) – China's factory activity likely contracted in October for a sixth month, according to a Reuters poll on Tuesday. However, the contraction is expected to be slight which aligns with officials' optimism that recent stimulus measures will help the world's second-largest economy.

A Reuters poll of 30 economists estimated the official purchasing managers' index (PMI) to be at 49.9, an increase from September's 49.8 but still below the 50-point threshold indicating contraction.

The manufacturing sector has experienced a depressed mood for several months due to falling producer prices and decreasing orders. Although China's exports—an important growth area—dipped last month, officials believe that the stimulus announced in late September will show positive effects soon.

"Based on our comprehensive assessment, the economy in the fourth quarter is expected to continue the stabilization and recovery trend that occurred in September," stated Sheng Laiyun, deputy head of China's statistics bureau, following the release of third-quarter data.

Economists have noted that sentiment-based surveys often lag behind hard data indicators. Analysts from Economist Intelligence Unit, Standard Chartered, and Citigroup forecast that China’s $19 trillion economy may return to expansion this month, predicting PMI readings of 50.4, 50.2, and 50.1, respectively.

Conversely, Goldman Sachs and Nomura predict a PMI of 49.8 while JPMorgan expects no change in manufacturing activity, projecting a 50 reading.

In a troubling sign, September saw the steepest monthly decline in industrial profits for the year, attributed to insufficient demand, according to the National Bureau of Statistics. Recent indicators have also revealed increasing deflationary pressures and weak loan demand, raising concerns about economic recovery and reinforcing the case for additional stimulus.

China's Finance Minister has committed to introducing further fiscal stimulus but has yet to provide specific figures, keeping investors uncertain. Reports from Caixin Global earlier this month suggested that China may raise 6 trillion yuan ($842.7 billion) through special treasury bonds in the upcoming months.

The private sector Caixin PMI is projected at 49.7 according to analysts surveyed by Reuters, with the release scheduled for Nov. 1. The official manufacturing PMI will be released on Thursday.