- Manufacturing PMI falls unexpectedly
- Non-manufacturing PMI falls as service sector slows
- PMIs show the economic recovery is losing momentum
- Markets are reeling due to PMI weakness
BEIJING, May 31 (Reuters) – Factory activity in China contracted faster than expected in May on weakening demand, increasing pressure on policymakers to support a patchy economic recovery and dragging Asian financial markets lower.
The official purchasing managers’ index (PMI) for manufacturing fell to a five-month low of 48.8, the National Bureau of Statistics (NBS) said on Wednesday, down from 49.2 in April and below the 50-point mark, which said Separating expansion from contraction. The PMI also dashed forecasts for a rise to 49.4.
Services activity expanded in May at its slowest pace in four months, with the official non-manufacturing PMI slipping to 54.5 from 56.4.
The readings pushed markets lower in Asia, with the yuan, Australian and New Zealand dollars all falling and regional stocks falling sharply.
“PMI data shows that China may be headed for a K-shaped recovery,” said Bruce Pang, chief economist at Jones Lang LaSalle.
“Sluggish domestic demand could hamper China’s sustained growth in the absence of efficient and effective policy steps to bring about a broad-based recovery,” Pang said.
PMIs also reflected weak factory data from elsewhere in Asia, with Japan reporting a surprise fall in production and a moderation in South Korea’s production.
The world’s second-largest economy is just recovering from three years of pandemic-related lockdowns, but the recovery has been uneven as service spending outpaced activity in factories, real estate and export-oriented sectors.
May PMI sub-indices showed that factory production contracted on an expansion, while new orders, including new exports, fell in the second month.
According to the NBS, the chemical, ferrous metal smelting and rolling industries have faced significant drops in production and demand.
In the service sector, rail, air and lodging remained buoyant on the back of heavy May Day travel, while real estate activity fell.
China’s economy
LOSES THE MOMENTUM
PMIs and other economic indicators for April are further evidence that the recovery is losing momentum.
Last month, imports fell sharply, factory prices fell, real estate investment collapsed, industrial profits collapsed and both factory production and retail sales missed forecasts.
Analysts are now lowering their expectations for the economy as both Nomura and Barclays lowered China’s 2023 GDP growth forecasts.
“Proactive fiscal policy, rate cuts or RRR cuts and targeted monetary policy tools along with structural reforms would be key,” Jones Lang LaSalle’s Pang added.
In March, the central bank cut banks’ reserve requirement ratios to boost credit growth.
Premier Li Qiang said more targeted measures are needed to boost demand this month, while China’s central bank said on May 15 it would provide “strong and stable” support to the real economy.
Amidst the weakness, China’s post-pandemic equity rally is faltering as retail investors turn bearish on equities in favor of safer assets.
“The mood on the financial market is quite pessimistic. It’s not clear how the government is interpreting the current economic situation,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management. “There is no sign of an imminent political response. The government may continue to adopt a wait-and-see attitude for the time being.”
Reporting by Liangping Gao and Ryan Woo; Edited by Sam Holmes
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