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China’s factory activity shrinks unexpectedly in July as COVID rages

China's factory activity shrinks unexpectedly in July as COVID rages
Written by boustamohamed31

Employees work on an auto component production line during a government-organized media tour at a factory of German engineering group Voith, following the outbreak of the coronavirus disease (COVID-19), in Shanghai, China, July 21, 2022. REUTERS/Aly Song

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  • China’s official July manufacturing PMI came in below forecast
  • July’s official services PMI grew at a slower pace
  • COVID outbreaks, cooling global demand, key property risks
  • Big stimulus is seen as unlikely, with the government failing to mention the growth target

BEIJING, July 31 (Reuters) – China’s manufacturing activity contracted unexpectedly in July after recovering from a COVID-19 lockdown the previous month, as new virus outbreaks and a darkening global outlook weighed on demand, a survey showed on Sunday .

The official manufacturing purchasing managers’ index (PMI) fell to 49.0 in July from 50.2 in June, the National Bureau of Statistics (NBS) said, below the 50-point mark that separates contraction from growth and the lowest since three months.

Analysts polled by Reuters had expected a reading of 50.4.

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“The level of economic prosperity in China has declined, the foundation for recovery still needs consolidation,” NBS senior statistician Zhao Qinghe said in a statement on the NBS website.

Continued contraction in energy-intensive industries such as oil, coking coal and ferrous metals contributed most to the decline in July’s manufacturing PMI, he said.

The manufacturing and new orders sub-indexes were down 3 points and about 2 points respectively in July, while the employment sub-index was down 0.1 point.

Weak demand has limited the recovery, Bruce Pang, chief economist and head of research at Jones Lang Lasalle Inc., said in a research note. “Growth in the third quarter may face more challenges than expected as the recovery is slow and fragile,” he added.

The official non-manufacturing PMI fell to 53.8 in July from 54.7 in June. The official composite PMI, which includes manufacturing and services, fell to 52.5 from 54.1.

China’s economy barely grew in the second quarter amid widespread lockdowns, and top leaders recently signaled that their strict zero-spread policy for COVID will remain a top priority. Read more

Policymakers are poised to miss their GDP growth target of “around 5.5%” this year, state media said after a high-level meeting of the ruling Communist Party. Read more

Beijing’s decision not to mention the target fueled speculation that authorities would introduce massive stimulus measures, as they have often done in previous downturns.

Capital Economics says the policy tightening, along with the constant threat of new lockdowns and weak consumer confidence, are likely to make China’s economic recovery more protracted.

ROUGH RECOVERY

After rebounding in June, the recovery of the world’s second-largest economy has slowed as outbreaks of COVID have led to tighter restrictions on activity in some cities, while the once-mighty property market has lurched from crisis to crisis.

Chinese manufacturers continue to struggle with high commodity prices squeezing profit margins as the outlook for exports remains clouded by fears of a global recession.

The southern Chinese metropolis of Shenzhen has vowed to “mobilize all resources” to curb the slow-spreading COVID outbreak, ordering strict enforcement of tests and temperature checks, as well as the lockdown of buildings affected by COVID. Read more

The port city of Tianjin, home to Boeing-related factories (BA.N) and Volkswagen and other districts tightened restrictions this month to combat new outbreaks. Read more

Lockdown measures had some impact on 41 percent of Chinese companies in July, according to World Economics, although the manufacturing business confidence index rose sharply from 50.2 in June to 51.7 in July.

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Reports from Beijing Newsroom; Editing by William Mallard and Himani Sarkar

Our standards: Thomson Reuters Trust Principles.

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