China economy: factory activity expands at slowest pace in 15 months as new orders drop
- The Caixin/Markit manufacturing purchasing managers’ index (PMI) fell to 50.3 in July from 51.3 in June
- In data released on Saturday, China’s official manufacturing PMI dropped to 50.4 in July from 53.5 in June
China’s factory activity growth slipped sharply in July as demand contracted for the first time in over a year in part on high product prices, a business survey showed on Monday, underscoring challenges facing the world’s manufacturing hub.
Analysts polled by Reuters had expected the index to ease to 51.1. The 50-mark separates growth from contraction on a monthly basis.
Policymakers have stepped up efforts to curb surging commodity prices that have squeezed manufacturers’ margins.
“The economy is still facing huge downward pressure,” said Wang Zhe, senior economist at Caixin Insight Group. High product prices brought down demand, especially for consumer goods and intermediate goods, said Wang.
A subindex for new orders slipped sharply into contraction for the first time since May 2020, while another subindex for production fell to the slowest pace of expansion since March last year.
Input prices continued to rise, albeit at a slower pace than the previous month but much faster than output prices, putting pressure on margins. Surveyed enterprises said raw material prices, especially for industrial metals, remained high.
“Market demand was sensitive to product prices, which limited enterprises’ pricing power,” said Wang.
Export orders grew slightly faster than the month before but still at a slow pace as the pandemic dampened overseas demand. Factories hired more workers for the fourth month in a row but at a slower pace.
An index of confidence in the year ahead slipped to the lowest level in 15 months.
The latest surveys suggest that the pace of growth slowed more than expected last month. Supply bottlenecks remain a constraint.
“The latest surveys suggest that the pace of growth slowed more than expected last month. Supply bottlenecks remain a constraint. But the PMIs suggest demand is cooling too, taking the heat out of price gains and weighing on activity in industry and construction activity,” said Julian Evans-Pritchard, senior China economist at Capital Economics.
“The latest survey readings reinforce our view that the economy will tread water during the second half of the year. Although this would mean a faster slowdown than most anticipate, it shouldn’t be cause for alarm given how strong activity has been recently.
“For now, China’s leadership don’t appear overly concerned about the economic outlook, with the readout from Friday’s Politburo meeting suggesting they intend to keep policy settings largely unchanged in the near-term, including their constraints on credit growth and tight property controls.”
