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China’s manufacturing activity has contracted for the third consecutive month, placing pressure on policymakers to address the economic slowdown.
The official manufacturing purchasing managers’ index (PMI) for June was 49, slightly higher than May’s 48.8, but still indicating a contraction in activity.
Although China’s economy is growing compared to the previous year when it faced intense Covid-19 restrictions, the pace of recovery has slowed in recent months.
The country’s property sector, which constitutes over a quarter of economic activity, is experiencing a prolonged slowdown. Youth unemployment has surpassed 20%, and trade is declining due to a weaker global economy. In May, exports shrunk by 7.5% compared to the previous year.
The latest PMI data reveals that the services sector, which was significantly impacted by Covid-19 restrictions, is growing on a month-on-month basis, with a reading of 53.2 in June. However, the growth rate is slower than May’s reading of 54.5 and lower than analysts’ expectations.
The Chinese government has set a GDP growth target of 5% this year, the lowest in decades following last year’s growth rate of just 3%.
Premier Li Qiang, speaking at a World Economic Forum event in Tianjin, stated that second-quarter growth is expected to surpass the 4.5% recorded in the first three months of the year. He expressed confidence in achieving the year’s growth target and criticized attempts by the US and Europe to distance themselves from China amid deteriorating geopolitical relations.
The People’s Bank of China recently reduced interest rates, but no major fiscal or monetary stimulus measures have been implemented in response to disappointing economic data. Economists anticipate additional measures, such as infrastructure spending and potential relaxations of property purchasing restrictions.
Citi analysts pointed out that the construction PMI of 55.7, while indicating sector expansion, was the lowest this year and reflected broader weaknesses in the property market. They expect the upcoming politburo meeting in July to serve as an opportunity to discuss a more comprehensive package of measures.
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