Economic activity slows further in China in May

Economic activity slowed further in China in May, according to fresh official data released on Tuesday, with measures for both the manufacturing and non-manufacturing sectors remaining in contraction territory.

The official manufacturing purchasing managers’ index (PMI) came in at 49.6 for the month, up from 47.4 in April and just ahead of consensus expectations for a reading of 49.0.

May’s official non-manufacturing PMI, meanwhile, was 47.8, rising from 41.9 in the prior month and well above the 45.5 market watchers had pencilled in.

Both measures, however, were still below the 50-point level that separates expansion from contraction.

“China’s PMIs were never going to be as bad in May as they were in April, given that zero-Covid restrictions were not tightened further,” said Craig Botham at Pantheon Macroeconomics.

“Instead, the question was whether they would show an economy that was recovering, or still shrinking, but less slowly.”

Botham noted that eight of the 26 forecasts reported by Bloomberg expected a reading above 50 for the manufacturing PMI - a “sizeable minority” calling for a return to growth.

“The sub-50 readings, however, point to a further fall - or charitably, stagnation in the case of manufacturing.”

Craig Botham said that, barring another wave of Covid-19, the worst should now be over with Chinese economic data.

“Stimulus policies announced today, coupled with the natural rebound in activity as the economy reopens, will probably see the PMIs comfortably above 50 in June.

“But this will come too late to spare China from a second quarter fall in GDP, with today’s PMIs consistent with further month-on-month declines in industrial production, retail sales, exports, and investment.”

Reporting by Josh White at Sharecast.com.