Manufacturing sector down for first time since 2017

China’s manufacturing sector contracted for the first time in 19 months, mainly due to the falling number of new orders, according to a report released on Wednesday.

The Caixin China General Manufacturing Purchasing Managers’ Index, which gauges vitality in the manufacturing sector and is slated to private companies, came in at 49.7 in December, after registering 50.2 in November, Caixin magazine and research firm Markit said.

A reading below 50 indicates contracted business in the sector, and it was the first time the Caixin PMI has fallen below that reading since May of 2017.

Zhong Zhengsheng, director of macroeconomic analysis at CEBM Group, said less new orders was the main reason for the slide.

“The sub-index for new orders slid below the break-even point of 50 for the first since June of 2016, reflecting decreasing demand in the manufacturing sector,” Zhong said in a note.

“While domestic demand weakened more notably in December, external demand remained subdued due to trade frictions,” Zhong said.

The report said a number of surveyed companies commented that relatively sluggish market conditions weighed on sales at the end of 2018, even though the data signaled a renewed increase in industrial production as the output index showed slight improvement.

Other indices showed that employment in the sector declined again, while prices charged for manufactured goods fell for the second month in a row.

The results were largely in line with the official PMI, released by the National Bureau of Statistics on Monday to measure performance in mostly large state-owned enterprises.

The official PMI stood at 49.4 in December, down from 50 in November and pointing to the first contraction since July of 2016.

Huang Jun, chief Chinese analyst at Forex.com, said weak demand across the world is expected to weigh on people’s expectations and lead to more caution among investors.

“The year of 2019 has more uncertainties than what we have seen in 2018,” Huang said.

China’s economy is expected to grow 6.3 percent year on year in 2018, according to an estimation by the Chinese Academy of Social Sciences in a previous report. It will mark a slowdown from the rate of 6.9 percent in 2017.