Key Takeaways
- China's official manufacturing PMI fell below the 50-mark in July, indicating contraction.
- New orders and export orders both contracted, raising concerns over domestic demand.
- Economic growth slowed to 4.3% in Q2 from 5.0%, putting pressure on policymakers.
China’s factory activity unexpectedly slipped into contraction in July, according to the National Bureau of Statistics (NBS). The official manufacturing purchasing managers’ index (PMI) fell to 49.2, missing the median forecast for 50 and marking a five-month low.
The non-manufacturing PMI also contracted, declining to 49 from 50.2 in June, while the composite PMI came in at 49.3 compared with a 50.6 reading the previous month. These figures underscore the headwinds confronting China’s economy as growth has already slowed in the second quarter despite solid external demand.
The NBS data showed that new orders dropped sharply to 48.5 from 51.2 the previous month, and the gauge for new export orders also contracted, coming in at 49.6 compared with 50.1 in June. This indicates a significant decline in both domestic and international demand.
The contraction in factory activity is part of a broader economic slowdown. Gross domestic product (GDP) growth in the second quarter slowed to 4.3% from 5.0% in the first three months, below the official annual target of 4.5%-5%. This has added pressure on policymakers to deliver stronger stimulus measures to shore up domestic demand and investment.
The Politburo, China’s top decision-making body, pledged in a meeting on Thursday to ‘attach great importance’ to the difficulties and challenges in the economy. It reiterated policy pledges for expanding domestic demand but did not unveil specific new measures.
While strong manufacturing and goods exports in the first half of the year have somewhat cushioned the Chinese economy from the Middle East oil shock, economic data released earlier this month showed that growth had lost steam and structural imbalances had deepened. The yuan has also eased from a three-year peak as factory activity stalls.
