A government survey of manufacturing activity released over the weekend fell for the second month in a row, to 49.2 in October from 49.6 in September. Any reading below 50 indicates shrinkage.
“It is clear that economic momentum is slowing rapidly and supply chain pressures are compounding this weakness,” Mitul Kotecha, chief emerging markets strategist for Asia and Europe at TD Securities, wrote in a research note on Monday. “While we could see some relief for manufacturers in the coming months, the supply shortage appears to be well established.”
Economists at Capital Economics noted that an average of the two surveys still indicates that more companies are reporting a drop in activity than an increase, indicating that overall production has been limited.
“Respondents noted that reduced power supply, material shortages and high input costs held back production,” Sheana Yue, an assistant economist at Capital Economics, wrote in a note Monday.
As the cost of materials continues to rise around the world, analysts expect supply bottlenecks to persist well into next year.
The Chinese government has taken steps to address some of the problems. Early last month, for example, China ordered coal mines to increase production, just months after ordering otherwise to control carbon emissions.
But analysts noted that those efforts do not provide immediate relief.
“Strong government measures to limit the key price of coal and boost coal production may take time to resolve the electricity shortage,” wrote Ken Cheung Kin Tai, Asia’s chief currency strategist at Mizuho.
Meanwhile, an official index of non-manufacturing business activity fell to 52.4 from 53.2 in September, indicating that consumer demand remains a concern, even if activity is still expanding.
Yue of Capital Economics wrote that declining data in the services sector suggests that a rebound in consumer activity over the summer is beginning to slow. The survey’s construction index also fell, which Yue wrote “hints at a new setback in real estate investment amid concerns about the financial health of Evergrande and other developers.”