China’s businesses and the broader economy came under increasing pressure last month as factory activity expanded at a slower pace while the services sector slumped into contraction, raising the likelihood of more near-term policy support to boost growth.
The world’s second-biggest economy staged an impressive recovery from a COVID-19-battered slump, but momentum has weakened recently due to domestic outbreaks, high raw material prices, slowing exports, tighter measures to tame hot property prices and a campaign to reduce carbon emissions.
The official manufacturing purchasing managers’ index (PMI) fell to 50.1 last month from 50.4 in July, data from the National Bureau of Statistics showed yesterday, holding just above the 50-point mark that separates growth from contraction.
Analysts polled by Reuters had expected it to slip to 50.2.
“The worse-than-expected August PMIs add conviction to our view that the growth slowdown in H2 could be quite notable,” Nomura Holdings Inc economists wrote in a note.
“We expect Beijing to maintain its policy combination of ‘targeted tightening’ for a few sectors, especially the property sector and high-polluting industries, complemented by ‘universal easing’ for the rest of the economy,” they said.
Nomura is not alone in its views, as many other analysts also expect the central bank to deliver a further cut to the amount of cash banks must hold as reserves later this year to lift growth, on top of last month’s cut, which released about 1 trillion yuan (US$154.7 billion) in long-term liquidity into the economy.
The manufacturing PMI showed demand slipped sharply, with new orders contracting and a gauge for new export orders falling to 46.7, the lowest in more than a year. Factories also laid off workers, at the same pace as July.
Adding to signs of a broadening economic slowdown, COVID-19-related restrictions drove services sector activity into sharp contraction for the first time since the height of the pandemic in February last year.
The official non-manufacturing PMI last month was 47.5, well down from July’s 53.3, bureau data showed.
“This epidemic in multiple provinces and locations was a fairly big shock to the services industry, which is still in recovery,” bureau senior statistician Zhao Qinghe (趙清河) said.
Catering, transportation, accommodation and entertainment industries were most affected, Zhao said. Construction activity accelerated to the fastest pace since March.
The official composite PMI for last month, which includes both manufacturing and services activity, fell to 48.9 from July’s 52.4.
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