According to an official survey released on Sunday, China's industrial output declined for a second consecutive month in June while services activity dropped to a five-month low. These findings support the need for more stimulus as the country's economy continues to struggle to recover.
The purchasing managers' index (PMI) of the National Bureau of Statistics (NBS) was 49.5 in June, unchanged from May. This figure is below the 50-point threshold that divides expansion from contraction and is consistent with a consensus expectation of 49.5 in a Reuters poll.
According to Xu Tianchen, senior economist at the Economist Intelligence Unit, "actual industrial 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 major economic driver this year."
However, Xu said, there is still not enough local and international demand to absorb China's industrial capacity, which will keep producer prices from rising.
The results of the NBS survey indicated that although a sub-index of output was over 50 in June, other indicators such as employment, raw material stockpiles, new orders, supplier delivery times, and new export orders were all in contractionary zone.
Although analysts said it is still too early to tell whether China's export sales are sustainable given the escalating trade tensions between Beijing and Western countries, the country's exports in May outperformed projections. Meanwhile, domestic demand is also being hindered by a protracted property crisis.
The non-manufacturing PMI, which includes services and construction, dropped from 51.1 in May to 50.5 in June, the lowest level since December, as consumers grew cautious and the temporary lift from the Labour Day holiday faded.
The construction PMI fell to 52.3, the lowest level since July of last year, while the services PMI plummeted to 50.2, a five-month low.
Analysts anticipate that China would implement further policy support measures in the near future, and that the government's commitment to provide fiscal stimulus will assist accelerate domestic consumption.
"The weak PMI figures naturally call for more supportive policies from the Chinese government. However, the room for monetary policy easing is limited for the time being, as the Chinese currency is under pressure," said Hao Zhou, chief economist at Guotai Junan International.
"That said, fiscal policy is likely to take the driving seat, suggesting that the central government will need to issue more debt over the foreseeable future to boost the overall domestic demand."
Although officials have implemented many steps since October of last year, investors' and factory owners' hopes have been dampened by excessive local government debt and deflationary pressure, which has thrown a lengthy shadow over recovery prospects.
In an effort to better balance supply and demand, China's central bank last month unveiled a plan for inexpensive home refinancing that would speed up the sale of unsold housing stock.
There is pressure on officials to ignite other development engines in order to lessen the economy's dependency on real estate.
At a meeting of the World Economic Forum on Tuesday, Premier Li Qiang stated that the emergence of new sectors was promoting sound economic growth.
"Since the beginning of this year, China's economy has maintained an upward trend... and is expected to continue to improve steadily over the second quarter," Li stated.
Awaiting the Third Plenum, which is expected to bring together hundreds of China's top Communist Party leaders in Beijing for a five-year gathering, are investors and economists. The conference is scheduled for July 15–18.
(Source:www.investing.com)
The purchasing managers' index (PMI) of the National Bureau of Statistics (NBS) was 49.5 in June, unchanged from May. This figure is below the 50-point threshold that divides expansion from contraction and is consistent with a consensus expectation of 49.5 in a Reuters poll.
According to Xu Tianchen, senior economist at the Economist Intelligence Unit, "actual industrial 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 major economic driver this year."
However, Xu said, there is still not enough local and international demand to absorb China's industrial capacity, which will keep producer prices from rising.
The results of the NBS survey indicated that although a sub-index of output was over 50 in June, other indicators such as employment, raw material stockpiles, new orders, supplier delivery times, and new export orders were all in contractionary zone.
Although analysts said it is still too early to tell whether China's export sales are sustainable given the escalating trade tensions between Beijing and Western countries, the country's exports in May outperformed projections. Meanwhile, domestic demand is also being hindered by a protracted property crisis.
The non-manufacturing PMI, which includes services and construction, dropped from 51.1 in May to 50.5 in June, the lowest level since December, as consumers grew cautious and the temporary lift from the Labour Day holiday faded.
The construction PMI fell to 52.3, the lowest level since July of last year, while the services PMI plummeted to 50.2, a five-month low.
Analysts anticipate that China would implement further policy support measures in the near future, and that the government's commitment to provide fiscal stimulus will assist accelerate domestic consumption.
"The weak PMI figures naturally call for more supportive policies from the Chinese government. However, the room for monetary policy easing is limited for the time being, as the Chinese currency is under pressure," said Hao Zhou, chief economist at Guotai Junan International.
"That said, fiscal policy is likely to take the driving seat, suggesting that the central government will need to issue more debt over the foreseeable future to boost the overall domestic demand."
Although officials have implemented many steps since October of last year, investors' and factory owners' hopes have been dampened by excessive local government debt and deflationary pressure, which has thrown a lengthy shadow over recovery prospects.
In an effort to better balance supply and demand, China's central bank last month unveiled a plan for inexpensive home refinancing that would speed up the sale of unsold housing stock.
There is pressure on officials to ignite other development engines in order to lessen the economy's dependency on real estate.
At a meeting of the World Economic Forum on Tuesday, Premier Li Qiang stated that the emergence of new sectors was promoting sound economic growth.
"Since the beginning of this year, China's economy has maintained an upward trend... and is expected to continue to improve steadily over the second quarter," Li stated.
Awaiting the Third Plenum, which is expected to bring together hundreds of China's top Communist Party leaders in Beijing for a five-year gathering, are investors and economists. The conference is scheduled for July 15–18.
(Source:www.investing.com)
