Employees work on an auto component production line during a government-organized media tour at a factory of German engineering group Voith, following the outbreak of the coronavirus disease (COVID-19), in Shanghai, China, July 21, 2022. REUTERS/Aly Song
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- China’s official July manufacturing PMI came in below forecast
- The July official services PMI grew at a slower pace
- COVID outbreaks, cooling global demand, key property risks
- Big stimulus is seen as unlikely, with the government failing to mention the growth target
BEIJING, July 31 (Reuters) – China’s manufacturing activity contracted unexpectedly in July after recovering from a COVID-19 lockdown the previous month, as new virus outbreaks and a darkening global outlook weighed on demand, a survey showed on Sunday .
The official manufacturing purchasing managers’ index (PMI) fell to 49.0 in July from 50.2 in June, below the 50-point mark that separates contraction from growth, the National Bureau of Statistics (NBS) said.
Analysts polled by Reuters had expected it to improve to 50.4.
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“The level of economic prosperity in China has declined, the foundation for recovery still needs consolidation,” NBS senior statistician Zhao Qinghe said in a statement on the bureau’s website.
Continued contraction in the oil, coal and metals industries was one of the main factors that lowered the July manufacturing PMI, he said.
The reading was the lowest in three months, with sub-indices for manufacturing, new orders and employment contracting.
Chinese manufacturers continue to struggle with high commodity prices squeezing profit margins as the outlook for exports remains clouded by fears of a global recession.
Weak demand is holding back the recovery, said Bruce Pang, chief economist and head of research at Jones Lang Lasalle Inc. “Growth in the third quarter may face more challenges than expected as the recovery is slow and fragile.”
The official non-manufacturing PMI fell to 53.8 in July from 54.7 in June. The official composite PMI, which includes manufacturing and services, fell to 52.5 from 54.1.
China’s economy barely grew in the second quarter amid widespread lockdowns, and top leaders recently signaled that their strict zero-spread policy for COVID will remain a top priority. Read more
Policymakers are poised to miss their GDP target of “around 5.5%” for this year, state media said after a high-level meeting of the ruling Communist Party. Read more
Beijing’s decision not to mention the growth target quelled speculation that the authorities would introduce massive stimulus measures, as they have often done in previous downturns.
Capital Economics says the policy tightening, along with the constant threat of new lockdowns and weak consumer confidence, are likely to make China’s economic recovery more protracted.
ROUGH RECOVERY
After rebounding in June, the recovery of the world’s second-largest economy has slowed as outbreaks of COVID have led to tighter restrictions on activity in some cities, while the once-mighty property market has lurched from crisis to crisis.
In addition, Chinese manufacturers are still grappling with high commodity prices that are squeezing profit margins, and the outlook for exports is clouded by fears of a global recession.
The southern Chinese metropolis of Shenzhen has vowed to “mobilize all resources” to curb the slow-spreading COVID outbreak, ordering strict enforcement of tests and temperature checks, as well as the lockdown of buildings affected by COVID. Read more
The port city of Tianjin, home to factories linked to Boeing ( BA.N ) and Volkswagen, and other areas tightened restrictions this month to combat new outbreaks. Read more
Lockdown measures had some impact on 41 percent of Chinese companies in July, according to World Economics, although the manufacturing business confidence index rose sharply from 50.2 in June to 51.7 in July.
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Reports from Beijing Newsroom; Editing by Himani Sarkar and William Mallard
Our standards: The Thomson Reuters Trust Principles.
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