The economy of China continues its contraction. One measure of the slower growth is its Purchasing Managers' Index (PMI) dipped to 49.8 in January from 50.1 in December. China's National Bureau of Statistics (NBS) and the China Federation of Logistics and Purchasing in Beijing released the data on Sunday.

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It is the first contraction of the PMI in more than two years since September 2012 when the index was below 50, the benchmark that separates expansion from contraction, reports Bloomberg.

The 49.8 PMI was lower than the median estimate of 50.2 by analysts surveyed by Bloomberg.

NBS senior statistician Zhao Qinghe attributed the fall in the PMI to seasonal changes, decline in commodity price and weak demand from both local and global markets.

Other economists said the data indicate that factories didn't enjoy the usual spike in business before the yearly Spring Festival holiday, which would fall in the middle of February 2015, Reuters reports.

Hardest hit by the lower PMI was raw material purchasing prices sub-index, which tumbled down to 41.9, the lowest in 12 months, while most sub-indices, including new orders and new export orders, likewise went down.

Zhang Zhiwei, chief China economist of Deutsche Bank in Hong Kong, said, "We expect such data will weaken further and push the government to take further easing actions."

Non-manufacturing PMI also logged a dip to 53.7 in January, down from December's 54.1. However, the share of services increased by 1.3 percentage points compared to 12 months ago, to 48.2 percent of the Chinese economy.

Bloomberg economist Tom Orlik, in a report released on Sunday, said the January numbers are indicators of continued moderate deterioration in growth. He agreed with Zhang's assessment that the PMI data plus the slowdown of the equity market spells more quantitative easing by the People's Bank of China. He also forecast another round of interest rate cut in Q1.

In November, the Chinese central bank cut the key lending rate for the first time in two years, which helped perk shareprices.

TagsChina manufacturing, PMI