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According to a Reuters poll, China manufacturing activity is likely to have contracted for the 2nd straight month in June. The official Purchasing Managers’ Index (PMI) is forecasted at 49.5, unchanged from April, suggesting continued contraction in the sector. A PMI reading below 50 suggests contraction, while above 50 signifies growth.
The Reuters poll of 19 economists showed varied forecasts, with DZ Bank predicting a PMI of 50.0 and China’s Industrial Bank at 49.1. The PMI is a sentiment-based survey that often reflects a more pessimistic view of the economy than hard data.
However, disappointing May figures for industrial output and profits indicate that factory owners have legitimate concerns.
China’s exports exceeded forecasts in May, indicating that manufacturers are still finding buyers overseas. However, experts are uncertain about the sustainability of these export sales, especially given the increasing trade tensions among China, the United States, and the European Union.
Domestically, a prolonged property crisis continues to dampen demand. While a five-day public holiday boosted retail sales in May, public sector investment grew only 0.1% from January to May, reflecting weak consumer and investor confidence.
Analysts anticipate that China will soon introduce more policy support measures. A government pledge to increase fiscal stimulus is expected to boost domestic consumption.
Despite these challenges, strong exports and policy support should help China’s $18.6 trillion economy grow by 5.5% this year, according to Julian Evans-Pritchard, head of China Economics at Capital Economics. However, he expressed concerns about the medium-term outlook.
Chinese Premier Li Qiang, speaking at a World Economic Forum meeting in Dalian, emphasized the importance of the rapid growth of new industries in sustaining economic development.
He stated that China’s economy has maintained an upward trend and is expected to continue improving steadily over the second quarter.
The official PMI is set to be released on Sunday, followed by the private-sector Caixin factory survey on July 1. Analysts expect the Caixin PMI to edge slightly to 51.2 from 51.7, still indicating expansion but at a slower pace.
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