China’s factory recovery accelerates in July – PMI

Published on: July 30, 2020
Author: Caroline Kong

China’s factory activity expanded in July for the fifth month in a row and at a faster pace, beating analyst expectations despite disruptions from floods and a resurgence in coronavirus cases around the world.

The official manufacturing Purchasing Manager’s Index (PMI)rose to 51.1 in July from June’s 50.9, official data showed on Friday, marking the highest reading since March. Analysts had expected it to slow to 50.7.

The 50-point mark separates growth from contraction on a monthly basis.

China has largely managed to recover from strict lockdowns that had led to weeks of economic paralysis, although it is now battling the most aggressive return of the novel coronavirus in months, driven by infections in the western region of Xinjiang and a separate flare-up in the northeast.

New export orders fell although at a slower pace than the previous month, indicating continued pressure on external demand. Companies continued to shed more employees than they hired, although the pace here also moderated. Production rose to a four-month high.

A Reuters poll this month has forecast GDP to expand 2.2% in 2020, up from 1.8% projected in the last poll in April, with recently improving data underpinning the more upbeat outlook.

Gauges ranging from trade to producer prices all point to a pick-up in manufacturing, but analysts say factories could have a tough time maintaining momentum as pent-up demand wanes and heavy flooding across large swathes of China disrupts economic activity.

Imports in June rose for the first time since the health crisis hit the economy, as government stimulus stoked demand for commodities, while exports, fuelled by medical goods, also rose in a sign the recovery is gaining traction.

Profits at China’s large industrial firms also rose at the fastest pace in over a year that month on easing costs and improving demand.

The fallout from the global pandemic, however, has left factories operating below strength amid slack demand. June factory gate prices fell in annual terms for the fifth consecutive month but at a slower-than-expected rate.

“We believe Beijing will likely maintain its easing stance through the remainder of this year as the economy is still far from a full recovery and faces heightened uncertainty,” Nomura analysts wrote Tuesday.

Source: Reuters

China News Consumer Products and Services Macro Technology