China's Manufacturing Activity Contracts for First Time in Five Months, Highlighting Weakening Economic Momentum

Latest data shows China's manufacturing activity unexpectedly contracted for the first time in five months, further highlighting signs of weakening economic momentum.

China's National Bureau of Statistics said Friday (31st) that the official manufacturing Purchasing Managers' Index (PMI) for July was 49.2, down from 50.3 in June and below economists' median forecast of 50.1.

The bureau noted that the non-manufacturing PMI, which measures activity in construction and services, fell from last month's 50.2 to 49.0, a larger-than-expected decline and the lowest level since December 2022. A PMI below 50 indicates economic contraction.

Huo Li Hui, chief statistician at the National Bureau of Statistics' Services Survey Center, attributed the decline to high base effects from earlier periods, the traditional off-season for production, and adverse factors such as high temperatures and heavy rains.

Bloomberg pointed out that the data suggests the economic weakness is becoming more entrenched, with the negative impact of weak domestic demand outweighing the resilience seen in exports. The Chinese government has cut infrastructure spending in recent months, and investors are increasingly watching whether policymakers will introduce stimulus measures to stabilize the economy.

Since April this year, market concerns over the health of China's economy have intensified as economic growth has slowed and imbalances have widened. Although energy shocks triggered by the Iran war have helped pull China out of years of deflation, consumer and business confidence remains low.

China's second-quarter economic growth slowed to 4.3%, the weakest quarterly expansion in over three years. However, thanks to a strong first quarter, the first-half growth rate reached 4.7%, still within the official target range of 4.5% to 5%.