The first official gauge of China’s economy in October showed manufacturing activity continued to worsen, as the effects of an ongoing trade war with the U.S. hit home.

The manufacturing purchasing managers index fell to 50.2 this month, lower than projected in a Bloomberg survey of forecasters. A gauge of new orders for export, which gives an indication of demand, fell further into contraction territory, dropping to the lowest reading since early 2016.

A level of 50 marks the dividing line between expansion and contraction. Most sub-indexes in the data declined from September, indicating that the slowdown was widespread.

China’s government is trying to balance competing forces, attempting to support growth while also continuing the policy of slowing debt expansion which has made credit to companies more scarce. Domestic economic growth is slowing, sentiment has followed the stock market down, and while exports are still strong now, they are expected to slow as higher U.S. tariffs kick in.

“Today’s PMI confirms that China’s economy is under strain and this is despite policy easing, export front-loading, a still-strong housing market and a relaxation of the anti-pollution campaign,” said Rob Subbaraman, head of emerging markets economics at Nomura Holdings Inc. in Singapore. “We believe the worst is yet to come. Payback from export front-loading, continued deleveraging and a property market correction will lead to a sharper deceleration in the economy in the first quarter next year.

Government Support

The government and central bank this month introduced a raft of measures to stabilize sentiment, adding to steps to boost liquidity in the financial system, tax deductions for households and targeted measures aimed at helping exporters. Those measures have yet to have much effect, and in particular the export orders gauge signals that the economy will see more downward pressure in the months to come.

Japanese and Korea industrial output in September both fell more than expected, with a series of natural disasters in Japan cutting production and the autumn holidays in Korea reducing the number of days factories were open.

China’s non-manufacturing PMI, which reflects activity in the construction and services sectors, also worsened to 53.9 from September’s 54.9 reading. The service-sector component dropped 1.3 points to 52.1, the lowest level since mid-2016, while the construction component rose to 63.9, matching the December 2017 record high.

Officials Talk Up Market

Top officials including President Xi Jinping have also sought to bolster investor confidence, commenting on the fundamental strength of the economy and attempting to talk up the stock market, which has fallen 9 percent this month.

A set of early indicators compiled by Bloomberg Economics prior to the official PMI report suggested that sentiment among executives and investors continued to deteriorate in October.

“China-U.S. trade tensions have impacted some industries,” said Wen Tao, an analyst with China Logistics Information Center, which releases the PMI data. “Looking ahead, with the environment cleanup campaign in winter set to kick in, and no positive shift in China U.S. trade frictions, domestic demand will be relatively stable in November, but external demand will continue to decline,” Wen said in a statement on the organization’s website.

On Tuesday, China’s currency slid to its lowest level against the U.S. dollar in more than a decade following a report that U.S. President Donald Trump plans to expand tariffs to cover the full range of imports from China if he is unable to extract concessions from Xi during a Group of 20 summit of world leaders in Argentina at the end of November.

The yuan traded onshore at 6.9659 per dollar at 10:56 a.m. in Shanghai. The benchmark stock index was up 0.7 percent in morning trading, but looked set to close the month down, having lost more than 8 percent of its value since the end of September.

“It’s important to keep China’s deceleration in perspective,” said Frederic Neumann, co-head of Asian economics research at HSBC Holdings Plc in Hong Kong. “While growth is slowing the latest numbers suggest that the manufacturing sector continues to expand. Therefore, policy support will likely remain incremental and targeted, not the big, sudden jolt that investors may expect.”