China’s factory activity shrank in March, official data showed on Thursday, as the country’s worst COVID outbreak in two years brought sporadic lockdowns and factory closures.

The Purchasing Managers’ Index (PMI) – a key gauge of manufacturing activity – slid to 49.5, just below the 50-point mark separating growth from contraction, according to data from the National Bureau of Statistics. That marked the first contraction in five months and was lower than expectations from economists polled by Bloomberg.

The fall comes as authorities struggle to stamp out coronavirus outbreaks with restrictions and lockdowns on key manufacturing hubs such as Shenzhen in the south and Changchun in the northeast.

“Recently, clustered outbreaks have occurred in many places in China,” NBS senior statistician Zhao Qinghe said in a statement on Thursday. “Coupled with a significant increase in international geopolitical instability, the production and operation activities of Chinese enterprises have been affected,” he added.

For weeks China has recorded thousands of virus cases each day, after nearly two years of virtually extinguishing infections within its borders. That has rattled its “zero-COVID” strategy.

Some companies temporarily reduced or stopped production because of COVID, which also hit logistics flows.

The non-manufacturing PMI also plunged, to 48.4 from 51.6, with the service industry significantly hit by the virus outbreak.

Beijing’s determination in maintaining its zero-COVID-strategy for fighting the infectious Omicron variant will very likely deal a severe blow to the Chinese economy- Nomura chief China economist Lu Ting

Nomura chief China economist Lu Ting expected PMIs to drop further “on escalated lockdowns and social distancing measures. Beijing’s determination in maintaining its zero-COVID-strategy for fighting the infectious Omicron variant will very likely deal a severe blow to the Chinese economy,” he told AFP.