China’s factory activity continued to decline for the third consecutive month in June, signaling a deepening weakness in several sectors. This adds further pressure on authorities to take measures to boost growth as domestic and international demand shows signs of faltering.
According to data from the National Bureau of Statistics (NBS), the services sector also experienced its lowest reading since the Chinese regime eased COVID-19 restrictions late last year. The official manufacturing purchasing managers’ index (PMI) slightly increased to 49.0 in June from 48.8 in May but remained below the 50-point mark that signifies expansion. This aligns with economists’ forecasts.
On the other hand, the non-manufacturing PMI declined to 53.2 in June from 54.5 in May, indicating a slowdown in service sector activity and construction. The NBS’ separate services index dropped to 52.8 in June from 53.8 in May, its lowest level since December when the Chinese Communist Party (CCP) lifted strict COVID-19 measures.
These survey readings initially led to a decline in the value of the yuan and the Australian dollar, with the former reaching a seven-month low and the latter falling to a three-week low. However, both currencies later recovered their losses.
Julian Evans-Pritchard, head of China economics at Capital Economics, noted that the service sector, after a brief boost from the reopening, seems to be settling into a new state of slower growth. Economists originally expected China’s economy to rebound quickly and become a major driver of global growth after the CCP eased COVID-19 restrictions. However, six months later, analysts are revising their forecasts for the rest of the year.
Nomura, a financial services group, has been particularly bearish, revising its growth forecast for China’s gross domestic product (GDP) this year from 5.5 percent to 5.1 percent. This revision takes into account the potential for new stimulus measures.
The PMI data also revealed a consistent decrease in new orders and new export orders for the third month in a row. Bruce Pang, chief economist and head of research for Greater China at Jones Lang LaSalle, attributed the June PMI readings to various imbalances and weaknesses, such as the ongoing contraction in domestic and international demand, a significant slowdown in small enterprises, and increasing pressure on the private economy.
In response to the weakening economic situation, China recently lowered key lending benchmark rates to stimulate activity and support growth. However, it remains to be seen how effective these measures will be in reversing the downward trend in factory activity and the broader economy.
As the global economic landscape continues to evolve, China’s policymakers will likely face increasing challenges in sustaining growth amidst both domestic and international uncertainties.
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