China: PMI data points to fairly soft end to Q2
The Manufacturing Purchasing Managers’ Index (PMI) published by the National Bureau of Statistics (NBS) and the China Federation of Logistics and Purchasing (CFLP) fell to 50.9 in June from 51.0 in May. As such, the index remained above the 50-threshold, signaling a continued improvement in business conditions from the previous month. The IHS Markit/Caixin manufacturing PMI—which focuses more on smaller firms on China’s east coast—also declined, from 52.0 to 51.3.
The fall in the NBS’ PMI came on the back of softer production growth and a faster contraction in new export orders, while both input and output price pressures eased notably on government measures to tame inflation. Looking at company size, the PMI for small firms rose, while that for medium and large firms fell.
The non-manufacturing PMI fell from 55.2 to 53.5, amid a notable slowdown in the services sector.
The declines in the PMI readings for June can likely be linked to flare-ups in Covid-19 cases at home and in other parts of Asia, as well as supply constraints. However, the economy should still have expanded at a robust pace over Q2 as a whole.
Commenting on the June readings and the near-term outlook, analysts at Nomura stated:
“Despite the sequential moderation in June from May, we believe PMI prints were still solid in Q2, pointing to the resilience of China’s economy amid the recent, small-scale resurgence of Covid-19 in Guangdong province. Thus, we maintain our forecast for seasonally adjusted quarter-on-quarter GDP growth to improve modestly to 2.0% in Q2 from 0.6% in Q1. Also, we expect the official manufacturing PMI to rebound slightly to 51.2 in July, thanks to the release of pent-up demand following the containment of latest wave of Covid-19, the recovery of some South China ports, and the relaxation of safety and environmental protection rules imposed before the 100th anniversary of the ruling party’s foundation.”