By Joe Cash and Ellen Chang
BEIJING (Reuters) – China’s manufacturing sector activity fell for the second straight month in June while services activity fell to a five-month low, an official survey showed on Sunday, keeping calls for more stimulus alive as the economy struggles to return to normal. Its natural course.
The National Bureau of Statistics’ Purchasing Managers’ Index (PMI) stood at 49.5 in June, unchanged from May, below the 50 mark that separates growth from contraction and in line with the average forecast of 49.5 in a Reuters poll.
“Actual manufacturing activity should be stronger than the data suggests, as our observation is that the official PMI fails to fully capture the current export momentum, which has been the main economic driver this year,” said Xu Tianchen, chief economist at the Economist Intelligence Unit. . .
However, Xu added that external and domestic demand are still relatively insufficient to absorb China’s manufacturing capacity, which will prevent the recovery of producer prices.
The NBS survey showed that while the production sub-index was above 50 in June, other indicators of new orders, raw material inventories, employment, supplier delivery times and new export orders were all in contraction territory.
China’s exports exceeded expectations in May, but analysts said it remains unclear whether export sales are sustainable amid rising trade tensions between Beijing and Western economies. Meanwhile, a prolonged real estate crisis continues to weigh on domestic demand.
With consumers cautious and the Labor Day holiday boost wearing off, the non-manufacturing PMI, which includes services and construction, fell to 50.5 from 51.1 in May, the lowest since December.
The services PMI fell to 50.2, its lowest level in five months, while the construction PMI fell to 52.3, its weakest reading since July last year.
Analysts expect China to roll out more policy support measures in the near term, while the government’s pledge to step up fiscal stimulus is seen as helping to push domestic consumption higher.
“The weak PMI numbers naturally call for more supportive policies from the Chinese government. However, the scope for easing monetary policy is limited at the moment as the Chinese currency is under pressure,” said Hao Zhou, chief economist at Guotai Junan International.
“However, fiscal policy is likely to take the lead, suggesting that the central government will need to issue more debt in the foreseeable future to boost overall domestic demand.”
But rising local government debt and deflationary pressures cast a long shadow over the recovery outlook, despite a series of measures taken by officials since last October that have dampened the expectations of investors and factory owners.
Last month, China’s central bank announced a re-lending program for affordable housing to speed up sales of unsold homes so that supply better matches demand.
Officials are under pressure to launch new growth engines to reduce the economy’s dependence on real estate.
The growth of new industries supports sound economic development, Premier Li Keqiang said at a meeting of the World Economic Forum on Tuesday.
“Since the beginning of this year, the Chinese economy has maintained an upward trend… and it is expected to continue to improve steadily during the second quarter,” Li said.
Economists and investors are anticipating the third session of the Chinese Communist Party from July 15 to 18, when hundreds of senior officials from the Communist Party of China will gather in Beijing for the meeting, which is held every five years.
