China’s manufacturing activity contracted to a 11-month low this month, an HSBC survey showed yesterday, the first evidence of the Asian economic giant losing further momentum in the third quarter.
The British banking giant said its preliminary purchasing managers’ index (PMI) hit 47.7 this month, down from a final 48.2 last month and the lowest since August last year.
The index tracks manufacturing activity in China’s factories and workshops and is a closely watched gauge of the health of the economy. A reading below 50 indicates contraction, while anything above signals expansion.
China shares slipped for the first time in three days on the news. The CSI300 of the leading Shanghai and Shenzhen A-share listings ended down 0.7 percent at 2,249.2 points, while the Shanghai Composite Index shed 0.5 percent.
The sluggish reading “suggests a continuous slowdown in manufacturing sectors thanks to weaker new orders and faster destocking,” Hong Kong-based HSBC economist Qu Hongbin (屈宏斌) said in a statement announcing the figure.
“This adds more pressure on the labor market,” Qu said, adding that it “reinforces the need” for policy support from Beijing to stabilize economic growth.
China’s economy has been weakening this year, with growth in the April-June period dipping to 7.5 percent, from 7.7 percent in the first quarter and 7.9 percent in October to December last year.
The latest PMI reading suggests China’s growth “has slowed further at the start of the third quarter,” Chris Williamson, chief economist at Markit, the financial information company that compiles the data for HSBC, said in a separate statement.
The government, which has set a full-year growth target of 7.5 percent for this year, has so far refrained from priming the economy with stimulus measures of the kind it took in the wake of the global financial crisis and even last year.
However, Chinese Premier Li Keqiang (李克強) reportedly said earlier this month that annual growth of 7 percent was a minimum, raising expectations the government may take steps to bolster the economy.
Bank of America Merrill Lynch economists said the deteriorating indicators could prompt supportive measures from Beijing and even expected a rebound after this month.
“Sentiment and growth outlook could be improved” after a credit squeeze in the interbank market eased and with the leadership’s commitment to delivering this year’s growth target and an average 7.0 percent expansion before 2020, Bank of America Merrill Lynch economists Lu Ting (陸挺) and Zhi Xiaojia said in a research note.
Separately, eurozone manufacturing unexpectedly expanded this month for the first time in two years, led by Germany, adding to signs the currency bloc’s economy is emerging from a record-long recession.
A manufacturing index based on a survey of purchasing managers rose to 50.1 from 48.8 last month, London-based Markit Economics said yesterday. That exceeds the median estimate of 49.1 in a Bloomberg News survey of 39 economists. A reading above 50 indicates growth.
The eurozone economy, which has contracted for six quarters, probably stagnated in the three months through last month and will return to growth this quarter, according to a separate Bloomberg survey of economists. The IMF forecasts the bloc’s economy will shrink 0.6 percent this year.
In Germany, Europe’s largest economy, the manufacturing gauge rose to 50.3, indicating growth for the first time since February.
The Bundesbank said on July 22 that the German economy is set to cool and that “signs of a slowdown in economic growth are increasing.”