BEIJING (Reuters – China’s manufacturing activity plunged to its lowest level in over two years, in March. The domestic COVID-19 resurgence, and the impact of Ukraine’s economic crisis, caused sharp drops in demand and production, according to a survey.

Caixin/Markit Manufacturing Purchasing Management Index (PMI), which fell to 48.1 March from 50.4 the month before, indicated the highest rate of contraction since February 2020.

A monthly growth and contraction is separated by the 50-point mark.

This was in keeping with Thursday’s official PMI, which revealed that activity had contracted at its fastest rate since October 2021. Comparable to the official survey, Caixin’s private sector survey is more focused on coastal firms.

Domestic and international demand both fell. The sub-index of new orders fell at its sharpest pace since February 2020, when China was battling the first wave COVID-19 epidemics. This led to 6.8% GDP contraction for the first quarter 2020.

The decline in export orders for March was especially rapid, with surveyed businesses stating that recent viruses in China and shipping disruptions, along with greater market uncertainty from the Ukraine crisis, caused customers to cancel orders or suspend them.

Five-months of high input cost inflation saw factories attribute higher prices to tighter global supply chains. This was made worse by the conflict in Ukraine.

Although the world’s second largest economy grew in pace over the first two months, it is now in danger of slowing down as authorities limit production and mobility within COVID-hit areas, such as major economic centers like Shanghai and Shenzhen.

This has caused a slowdown in output growth, with the production sub-index at 46.4 in February. It is the lowest level since February 2020.

Cabinet meeting Wednesday stated that officials from the government have pledged to create policies to stabilize and support the economy when there is downward pressure.

The Caixin survey showed little hope for the future. However, the employment index rose after eight months of stagnation. This was because factories were increasing their workforces following the Lunar New Year.

China currently faces the worst outbreaks of disease since 2020. In the accompanying statement, Wang Zhe (Senior Economist, Caixin Insight Group), said that uncertainty has increased elsewhere.

“The possibility of war between Russia and Ukraine remains uncertain and has destabilized the commodity market. There are many factors that resonate. This increases the pressure on China’s economy, and underscores the danger of stagflation.

Wang called for greater assistance to vulnerable people and small business owners, noting that policymakers should strike a balanced between normal production levels and the safety of the public.