China's factory activity likely contracted in February on slower production after the Lunar New Year holiday and Winter Olympics, with Beijing expected to unveil more stimulus measures at a parliamentary meeting later this week to support the economy.
The official manufacturing Purchasing Manager's Index (PMI) is expected to ease to 49.9 in February, its lowest reading in four months, from 50.1 in January, according to the median forecast of 35 economists polled by Reuters on Monday. A reading below the 50-point mark indicates a contraction from the previous month.
"Apart from seasonality impact from Lunar New Year timing shifts, production curbs during the Winter Olympics and still-subdued property sector activity likely weighed on upstream demand," analysts at Morgan Stanley (NYSE: MS) said in a note on Friday.
They expect the National Bureau of Statistics manufacturing PMI to have slipped to 49.6.
The week-long Lunar New Year holidays began at the end of January and the Beijing Winter Olympics took place from Feb. 4-20.
However, Capital Economics expects some upside surprise to the data, citing loosened COVID-19 restrictions as outbreaks were contained.
"Early indicators suggest that conditions improved in February. Most localised restrictions on industrial areas and port cities were lifted thanks to fewer outbreaks this month compared to January."
China's economy started last year on a strong footing, rebounding from a pandemic-induced slump the previous year.
Momentum started to flag in the summer, however, weighed down by debt problems in the property market and strict anti-virus measures that hit consumer confidence and spending.
Policymakers have vowed to stabilize growth this year and all eyes are on the annual meeting of its top legislative body that begins on March 5 during which the government will unveil economic targets for the year and likely more stimulus measures.
New bank lending hit a record high in January, the latest data showed after the central bank lowered benchmark lending rates to jump-start the economy.
The official PMI, which largely focuses on big and state-owned firms, and its sister survey for the services sector, will be released on Tuesday.
The private Caixin manufacturing PMI will also be published on the same day. Analysts expect the headline reading will edge up slightly to 49.3 from 49.1 previously.
Analysts at Goldman Sachs (NYSE: GS) said seasonality tends to generate a small upward bias to the Caixin manufacturing PMI in February.
