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Production and service activity in China declined in March, for the first time in almost two years, a sign of the economic burden of austerity measures against the coronavirus amid weaker growth momentum.

The official manufacturing PMI, a factory activity gauge with a value of 50 separating monthly growth from shrinkage, fell to a five-month low of 49.5. The PMI for non-manufacturing fell to 48.4, the lowest level since August.

The data comes as China faces its worst Covid-19 outbreak in two years. China has largely curbed since the outbreak of the virus through strict quarantine measures, quarantine, travel restrictions and mass testing.

As a sign of the country’s continued commitment to this approach, Shanghai, China’s main financial center, launched a prison this week that splits the city in two and blocks it from the rest of the country. Officials have previously indicated that imprisonment will not be imposed.

Zhao Qinghe, a senior statistician at the National Bureau of Statistics, said outbreaks across China are affecting business. He noted that some companies said the virus was understaffed, adding that the delivery timer was at its lowest level since March 2020.

Julian Evans-Pritchard, a senior Chinese economist at Capital Economics, said the PMI data “suggest the economy is shrinking the fastest since the peak of the initial outbreak of Covid-19 on February 2020”.

The drop in non-productive activities was “entirely due to a sharp drop in the services index,” he added, “when strict restrictions on movement and closure across the city were reintroduced and consumers became more cautious in the event of a virus outbreak again.”

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