China: Manufacturing and non-manufacturing PMIs disappoint in July
Latest reading: China’s official NBS Non-Manufacturing PMI fell to 49.0 in July from 50.2 in June, signaling a renewed contraction and falling short of expectations. Activity weakened across both services and construction. Postal services, telecommunications, broadcasting, and culture and entertainment remained relatively strong, while capital market services and real estate stayed in contraction. New orders declined, selling prices softened, and employment weakened slightly. Input costs were broadly unchanged, while business expectations improved marginally, indicating continued optimism about future activity.
The NBS Manufacturing PMI declined to 49.2 in July from 50.3 in June, also missing market expectations and indicating a contraction in factory activity. Output and new orders contracted, including export orders, while purchasing activity weakened and supplier delivery times lengthened. Employment remained subdued, input cost pressures eased but stayed elevated, and output prices fell further. Business sentiment also weakened slightly.
Panelist insight: Commenting on the data, Nomura analysts said:
“The sharp drop in the July official PMIs points to downside risks to our current Q3 GDP forecast of 4.5%, following the lowest post-Covid GDP reading of 4.3% in Q2, and we expect another round of downward revisions to GDP growth forecasts by those who are overly optimistic. […] the Politburo meeting emphasized the need to step up counter-cyclical policy measures and speed up fiscal spending in coming months. However, we believe the scale of such measures might be limited, due to Beijing’s concerns of diminishing returns on investment and unmanageable fiscal deficits.”