China: Manufacturing and non-Manufacturing PMIs picks up in May, but remain in contractionary terrain
The National Bureau of Statistics’ Manufacturing Purchasing Managers’ Index (PMI) rose to 49.6 in May from April’s 47.4. Consequently, the index moved closer to the 50.0 no-change threshold, signaling a softer deterioration in business conditions compared to the previous month.
The headline print reflected softer falls in output, exports, purchasing activity and new orders, and easing price pressures. The National Bureau of Statistics’ non-Manufacturing PMI came in at 47.8 in May, up from April’s 41.9, amid a milder contraction in new orders. Both PMI readings beat market expectations, and were buoyed by the slight easing of Covid-19 restrictions in some areas of the country during May. Further lockdown easing—including in Shanghai—should support higher PMI readings and a recovery in economic activity in June.
However, analysts at Nomura cautioned that the economy is not yet out of the woods:
“We expect the official manufacturing PMI to rebound to 50.3 in June, returning to expansionary territory for the first time since February. However, lockdowns have also been escalated in some districts in Beijing, and the central government clearly intends to stick to its zero-Covid strategy (ZCS). Shanghai’s phased-in reopening may only represent a respite rather than a turning point, as the real turning point will be marked by a shift in China’s stance on its ZCS rather than headline Covid caseloads, the easing of some lockdowns or monthly activity data.”