China's largest companies were as pessimistic about the outlook for business conditions in February as they were at the height of the global financial crisis, the latest MNI China Business Sentiment Survey showed.
The MNI China Business Indicator, a gauge of current business sentiment, fell for a second consecutive month to 52.8 in February from 53.7 in January, leaving confidence at the lowest level since October last year. A sharp fall in expectations for business conditions over the coming three months left the Future Expectations Indicator at the lowest level since the series began inMarch 2007.
Production fell to a four-month low in February while New Orders decreased to the lowest level sinceApril 2014. Production and New Orders have been the most active indicators in the last few months, hitting multi-year highs on the back of infrastructure spending in December. However, both have fallen substantially over the past two months and companies were also increasingly pessimistic about orders and output over the next three months.
The central bank's recent rate cut and intensified efforts to increase liquidity in the financial system are not finding their way to our panel of companies. The Availability of Credit Indicator fell below the breakeven 50 line in February to a four month low of 47.8 from 51.6 in the month before. The early February cut to the Reserve Requirement Ratio came in the middle of our survey period and its effects are likely to be seen over the coming months.
Deflationary pressures intensified as prices received for goods and services fell further into contraction to the lowest in over six years in February. Firms in our panel also acknowledged a drop in input prices in February, after several months where increases in employment and other costs were reported to have outweighed falls in raw material prices.
"Following some resilience towards the end of last year, the deterioration seen across most indicators in our survey since the start of 2015 points to a difficult year ahead. Companies are now less optimistic about future business conditions than current conditions, a warning that the economic environment is likely to worsen further," saidPhilip Uglow, Chief Economist of MNI Indicators.
"The Chinese authorities have already taken some action to underpin growth. The disinflationary signals from our business survey as well as weakness in our sister consumer survey suggest more needs to be done to prevent a sharper decline."
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