Employees work on the vehicle component production line during a government-organized media tour of a factory of German engineering group Voith, following the outbreak of the coronavirus disease (COVID-19), in Shanghai, China, on July 21, 2022. REUTERS/Aly Song
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- China’s July official manufacturing PMI below forecast
- July official services PMI grows at a slower pace
- COVID calls, global cooling demand, key property risks
- A big stimulus considered unlikely, the government omits to mention the growth target
BEIJING, July 31 (Reuters) – China’s factory activity unexpectedly contracted in July after recovering from the previous month’s COVID-19 lockdowns, as new virus outbreaks and the global outlook dimmed 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, the National Bureau of Statistics (NBS) said, below the 50 points that separate contraction in growth and the lowest in three months.
Analysts polled by Reuters had expected a reading of 50.4.
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“The level of economic prosperity in China has fallen, the foundations for recovery still need consolidation,” NBS senior statistician Zhao Qinghe said in a statement on the NBS website.
The continued contraction in energy-intensive industries such as gasoline, coking coal and ferrous metals contributed most to the decline in July’s manufacturing PMI, he said.
The production and new orders sub-indices fell 3 points and about 2 points in July, respectively, while the employment sub-index fell 0.1 point.
Weak demand has constrained the recovery, Bruce Pang, chief economist and head of research at Jones Lang Lasalle Inc, said in a research note. “Growth in the third quarter may face bigger challenges than expected as the recovery is slow and fragile,” he added.
July’s official non-manufacturing PMI fell to 53.8 from 54.7 in June. The official composite PMI, which includes manufacturing and services, fell from 54.1 to 52.5.
China’s economy barely grew in the second quarter amid widespread lockdowns, with top leaders recently signaling that its strict zero-covid policy would remain a priority. Read more
Policymakers are prepared to miss their GDP growth target of “around 5.5%” for this year, state media reported after a high-level meeting of the ruling Communist Party. Read more
Beijing’s decision to drop mention of the target has quelled speculation that the authorities would launch massive stimulus measures, as they have often done in past recessions.
Capital Economics says policy easing, along with the constant threat of more lockdowns and weak consumer confidence, is likely to make China’s economic recovery longer.
RECOVERY FAILED
After a rebound in June, the recovery in the world’s second-largest economy has faltered as outbreaks of COVID caused activity to tighten in some cities, while the once-powerful housing market crisis in crisis
Chinese manufacturers continue to struggle with high commodity prices, which are squeezing profit margins, as the export outlook remains clouded by fears of a global recession.
The southern Chinese megacity of Shenzhen has pledged to “mobilize all resources” to curb a slowly spreading COVID outbreak, ordering strict implementation of testing and temperature checks and lockdowns to in buildings affected by COVID. Read more
The port city of Tianjin, home to factories linked to Boeing ( BA.N ) and Volkswagen, and other areas have tightened curbs this month to combat new outbreaks. Read more
Lockdown measures had some impact on 41% of Chinese companies in July, according to World Economics, although its manufacturing business confidence index rose significantly from 50.2 in June to 51.7 in July.
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Report from Beijing Newsroom; Editing by William Mallard and Himani Sarkar
Our standards: the Thomson Reuters Trust Principles.