A garment factory in Shanghai. Growth in China’s manufacturing sector likely steadied in July but remained at a subdued pace, a Reuters poll showed yesterday.
Reuters/Beijing
Growth in China’s manufacturing sector likely steadied in July but remained at a subdued pace, a Reuters poll showed, fuelling hopes that a slowdown in the world’s second-largest economy may be gradually bottoming out.
The official manufacturing Purchasing Managers’ Index (PMI) likely stood at 50.2 in July, on par with the previous month’s reading, according to the median forecast of 20 economists in the poll. But growth was tepid, with the reading just above the 50 point mark that separates contraction from expansion on a monthly basis.
“Momentum remains soft as real activities saw little improvement in June,” ANZ economists said in a note, adding that the indicator could edge down to 50.1 in July.
The flash Caixin/Markit PMI released last week showed China’s factory activity contracted by the most in 15 months in July, reinforcing views that the struggling Chinese economy needs more stimulus.
The official survey looks more at larger, state-owned firms, while the Caixin/Markit survey focuses on smaller firms. Weighed down by a cooling property market, factory overcapacity and sluggish domestic demand, China’s economy grew 7% in the first six months of the year, which is in line with Beijing’s full-year target.
But the equity market panic since mid-June has fuelled concerns about the health of the economy and risks to the financial system.
China’s stocks suffered their biggest one-day fall since 2007 on Monday and gyrated wildly again on Tuesday despite a fresh pledge by regulators to lend further support to the market.
China’s top economic planner said on Tuesday that it was optimistic on the outlook for the economy in the second half of 2015, but was paying close attention to volatility in stock markets.While economists at Nomura said China’s economy was “far from being in a crisis scenario”, they said shaken investors could cut back on spending and investment, which could impede a broader economic recovery that had been expected in the second half of the year.
Market watchers also fear that some companies may be facing heavy losses after speculating in stocks, although the overall amount of leverage is hard to quantify. Still, Nomura said the sell-off “should only have a limited negative impact on the real economy”.
The central bank has cut interest rates three times this year, in a bid to support an economy headed for its poorest performance in a quarter of a century. Many economists expect further policy easing in coming months. The PMI factory numbers will be released on Saturday, alongside the official service sector PMI. Services have been a lone bright spot in the Chinese economy, offsetting persistent factory weakness, but the stock market plunge could dent the performance of financial services firms and their contribution to GDP.
