BEIJING (Reuters) – China’s manufacturing activity shrank for a third straight month in July, an official factory survey showed on Wednesday, renewing expectations that Beijing will need more stimulus as a persistent property crisis and job uncertainty drag on growth.
The official purchasing managers’ index (PMI) fell to 49.4 in July from 49.5 in June, below the 50 threshold between growth and contraction but above the median forecast of 49.3 in a Reuters poll.
The world’s second-largest economy grew much more slowly than expected in the second quarter, with the consumer sector a particular cause for concern. Retail sales growth fell to an 18-month low as deflationary pressures forced companies to cut prices on everything from cars and food to clothing.
Half of the 300 billion yuan ($41.40 billion) of ultra-long government bonds that China’s state planner announced on Thursday will be allocated to support a consumer trade-in program. But that amount is seen as too small to meaningfully boost the economic recovery, as it equates to just 0.12% of economic output and 0.3% of retail sales in 2023.
Solid Chinese exports have provided some support to factory managers in recent months and supported progress toward the government’s growth target of around 5 percent. But with more trading partners weighing tariffs, it remains to be seen whether this momentum can be sustained.
Outbound shipments grew at the fastest pace in 15 months in June, while imports unexpectedly fell, suggesting that domestic demand remains weak and manufacturers are bringing forward orders to beat tariffs from trading partners.
Meanwhile, non-industrial activity grew more slowly in July, pointing to weakening domestic demand for services and highlighting the concern of the multi-year crisis in the real estate sector.
The official purchasing managers’ index (PMI) for non-manufacturing, which includes services and construction, fell to 50.2 from 50.5 in June.
The decline in domestic consumption is closely linked to the decline in house prices, which makes families feel poorer, as 70% of household wealth is tied up in real estate.
In June, new home prices fell at the fastest rate in nine years.
Analysts expect the government to implement a new set of policies to support real estate this week after a meeting of the Politburo, a top decision-making body of the ruling Communist Party.
State media reported on Tuesday that China will intensify its macroeconomic policies and countercyclical adjustments and increase domestic demand by boosting consumption.
(Reporting by Joe Cash; Editing by Jacqueline Wong)