China’s manufacturing ‘limping along’ as activity contracts for third straight month in June
- China’s official manufacturing purchasing managers’ index (PMI) rose to 49 in June from 48.8 in May, while the non-manufacturing gauge fell to 53.2 from 54.5
- China’s economic recovery has been hit by rising youth unemployment as well as disappointing retail sales and industrial production
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China’s factory activity picked up in June but remained in contraction for a third straight month amid an overall slowing economic recovery, while expansion in the non-manufacturing sectors slowed this month, data released on Friday showed.
Nomura analysts said the slight rebound in the official manufacturing PMI was concentrated in production, with the new orders subindex also edging up.
The subindex to gauge new orders rose to 48.6 from 48.3 in May, but the new export orders subindex slipped to a five-month low of 46.4, with three of the five subindices that directly feed into the headline manufacturing PMI calculation edging down in June.
At least things aren’t getting noticeably worse
“Apart from a short-lived bounce in the manufacturing sector after the zero-Covid measures were shelved in early December 2022, China’s manufacturing has been limping along,” said Robert Carnell, regional head of research for Asia-Pacific at ING.
“It was not much of a surprise to see it stay in this area in June, though perhaps the fact that the contraction is relatively stable is a source of some comfort. At least things aren’t getting noticeably worse.”
The official non-manufacturing PMI, which measures business sentiment in the services and construction sectors, fell to 53.2 in June from 54.5 in May.
Within the non-manufacturing gauge, the services subindex fell to 52.8 in June from 53.8 in May, while the construction subindex fell to a six-month low of 55.7 from 58.2.
Nomura analysts pointed to the post-Covid recovery in tourism and mobility appearing to lose steam during the three-day Dragon Boat Festival, with the construction sector also continuing to slow as average prices for building materials, such as cement, dropped to a record low since 2017.
The official composite PMI, which includes both manufacturing and services activity, fell to 52.3 in June, from 52.9 in May.
Analysts at Capital Economics said this was, outside the coronavirus pandemic, its lowest level on record.
This, they said, suggests the labour market appears to be softening again as the composite employment index weakened for a second straight month, hinting at an uptick in the unemployment rate.
Premier plays up China’s economic outlook, hits out at West over ‘de-risking’
“Economic momentum is still quite weak in China. Recent data shows that the global economy is slowing, which will likely put further pressure on external demand in the coming months,” said Zhang Zhiwei, president and chief economist at Pinpoint Asset Management.
“It is not clear if the weak economic data will push the government to launch aggressive stimulus measures soon.”
The economy should still make some headway during the rest of the year provided that greater policy support is forthcoming, but the gains are likely to be modest
He also said Beijing was confident that China would reach its 5 per cent annual growth target for 2023, while Li also promised to launch “pragmatic and effective policies” to boost growth.
“The PMI surveys suggest that China’s reopening recovery continued to lose momentum in June. Downward pressure on manufacturing eased slightly,” said analysts from Capital Economics.
“But waning fiscal support weighed on construction activity and even service sector growth – a bright spot earlier this year, has now dropped below pre-pandemic levels.
“The economy should still make some headway during the rest of the year provided that greater policy support is forthcoming, but the gains are likely to be modest.”
