China’s manufacturing sector contracts further in February.

China’s manufacturing activity continued to weaken in February, official data released on Wednesday showed, falling short of forecasts and prolonging a slowdown ahead of key policy announcements.

The world’s second-largest economy has been grappling with sluggish domestic demand and investment, putting pressure on its extensive manufacturing sector.

According to the National Bureau of Statistics (NBS), the manufacturing purchasing managers’ index (PMI) dropped to 49.0 in February, below the 50-point threshold that separates expansion from contraction. This was down from January’s 49.3 and slightly below the Bloomberg survey forecast of 49.2.

NBS statistician Huo Lihui attributed the decline primarily to slower activity during the Spring Festival holiday, which fell entirely in February this year. Huo added that sectors such as textiles, apparel, and automobiles remained below the critical point, reflecting continued weak market activity.

China’s non-manufacturing PMI, which measures performance in services and construction, rose slightly to 49.5 in February, improving modestly from January’s reading.

The figures were released just a day before Chinese leaders are scheduled to unveil the new Five-Year Plan at the annual Two Sessions political gathering in Beijing. The announcements, expected on Thursday, will include this year’s growth target and the defence budget.

“Economic activity contracted at the start of the year,” said Zhiwei Zhang, President and Chief Economist at Pinpoint Asset Management. He noted that the government’s policy approach remains flexible and expects that moderate investment support may be introduced to ease pressure on the economy if the slowdown continues in the coming months.