Chinese factory activity contracted in July after recovering from Covid-19 shutdowns last month, as new virus outbreaks and an increasingly dark global outlook weighed on demand, according to a survey released on Sunday.
The official purchasing managers’ index (PMI) of output fell to 49. 0 in July from 50. 2 in June, below the 50-point mark between contraction and growth, the Office for National Statistics (NBS) said.
Analysts polled through Reuters had expected it to reach 50. 4.
“The point of economic prosperity in China has fallen, the foundations of the recovery still want to consolidate,” SNB senior statistician Zhao Qinghe said in a message on the office’s website.
The continued contraction in the oil, coal and steel smelting industries is one of the main points that reduced the July production PMI, he said.
The reading is the lowest in 3 months, with the sub-indices of production, new orders and employment all contracted.
Chinese brands continue to struggle with high commodity prices, squeezing profit margins, while export customers remain clouded by fears of a global recession.
Weak demand has limited the recovery, Bruce Pang, lead economist and head of research at Jones Lang Lasalle Inc. , said in a notes. “Growth in the third quarter may face more demanding situations than expected, as the recovery is slow and fragile. “
The official non-production PMI in July fell to 53. 8 from 54. 7 in June. The official composite PMI, which includes production and services, fell to 52. 5 from 54. 1.
China’s economy grew slightly in the current quarter amid widespread shutdowns, with most sensible executives recently noting that its strict 0 Covid policy would remain a more sensible priority.
Policymakers set themselves on their GDP target of “around 5. 5 percent” for this year, state media reported after a high-level assembly of the ruling Communist Party.
Beijing’s resolve to avoid mentioning the expansion target has stifled the hypothesis that the government would implement large stimulus measures, as it has done in past recessions.
Capital Economics says political restraint, coupled with the constant threat of additional shutdowns and weak customer confidence, make China’s economic recovery more prolonged.
After a rebound in June, the recovery of the world’s second-largest economy has lost steam as covid outbreaks have led to further curbing activity in some cities, while the once-powerful housing market is reeling from one crisis to another.
Chinese brands also continue to suffer from high commodity prices, which reduce profit margins, and export customers are clouded by fears of a global recession.
The megacity of Shenzhen, in southern China, pledged to “mobilize all resources” to curb the slow spread of the covid outbreak, ordering the strict implementation of controls and temperature, and the closure of buildings affected by covid.
The port city of Tianjin, home to factories connected to Boeing and Volkswagen, and other spaces tightened restrictions this month to combat new outbreaks.
According to World Economics, the lockdown measures affected 41% of Chinese companies to some extent in July, although their output business confidence index rose significantly, from 50. 2 in June to 51. 7 in July.
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