China’s Key Factory Gauge Slips as Economic Recovery Eases
China’s economic activity continued to ease in July, implying a more steady recovery into the second half of the year as growth risks mount.
The official manufacturing purchasing managers’ index fell to 50.4 from 50.9 in June, the National Bureau of Statistics said Saturday, below the 50.8 median estimate in a Bloomberg survey of economists. Readings above the 50-mark signal an expansion in output.
The non-manufacturing gauge, which measures activity in the construction and services sectors, eased to 53.3, in line with forecasts.
China’s V-shaped rebound has stabilized in recent months, with growth showing more balance in the second quarter as consumer spending recovered. Manufacturing has been supported by strong export demand during the pandemic, and while it’s likely to slow somewhat in coming months, output is expected to remain solid.
There are risks that are clouding the outlook. A shortage of computer chips and electricity has curbed factory expansion, and recent Covid-19 outbreaks like in Jiangsu province, a major manufacturing hub, are also a worry, threatening to hamper some production and weigh on consumer spending.
What Bloomberg Economics Says...
The recovery continued in the manufacturing and non-manufacturing sectors. But the positive news stops there -- and there are plenty of risks. In the manufacturing sector, supply and demand both slowed notably, and upward price pressures intensified.
Chang Shu, chief Asia economist
For the full report, click here
Manufacturing was hindered in July as some factories usually embark on equipment maintenance, the statistics bureau said. Extreme weather conditions -- high temperatures and flooding in some areas -- also affected production, it said.
Generally, the data shows “China’s economy continues to expand, but at a slower pace,” the bureau said.
Other key highlights from the PMI data:
- New orders sub-index fell to 50.9 from 51.5
- New export orders index dropped to 47.7 from 48.1
- Sub-index for manufacturing jobs rose slightly to 49.6; non-manufacturing employment increased to 48.2
- Construction subindex declined to 57.5
Price pressures on manufacturers rebounded in the month, with both input and output prices gaining. The government has taken several measures in recent weeks to increase supply of some commodities and steady prices.
The data follows a key meeting of the Communist Party’s Politburo, in which senior officials reviewed the economy’s performance in the first half and set policy priorities for the rest of the year.
The tone of the meeting suggested fiscal and monetary support would remain broadly stable in the second half, analysts said. The Politburo pledged more effective fiscal support for the economy and said monetary policy would provide sufficient liquidity.
“The authorities continue to stress that China is faced with external uncertainty and the domestic recovery is not solid and uneven,” said Raymond Yeung, chief economist for Greater China at Australia and New Zealand Banking Group. “We do not see significant change in the countercyclical policy stance that emphasizes on sector specific impact.”
©2021 Bloomberg L.P.