china’s factory output contracts again, raising concerns about cooling demand
Official data released on Thursday showed that China’s manufacturing sector experienced its fourth consecutive month of contraction in July, fueling apprehensions about waning domestic demand. The Purchasing Managers’ Index (PMI), a crucial barometer of industrial output, slumped to 49.3 from June’s 49.7, lingering below the crucial 50-point mark that separates expansion from contraction.
Analysts had predicted the index to remain unchanged, adding to the surprise of the sharp decline. Zhao Qinghe, a statistician at the National Bureau of Statistics (NBS), attributed the decrease to factors such as the industry’s typical slowdown during this period, along with extreme weather conditions, including heatwaves, heavy rains, and severe floods that affected production in certain regions.
However, economist Zichun Huang at Capital Economics noted that the breakdown suggested a softening demand, going beyond mere weather disruptions. She pointed to a drop in the new export orders index, which she linked to the reemergence of high tariffs. Huang also highlighted that the weakness in demand seems to be more domestically driven.
China’s economic revival post-pandemic has been haunted by challenges ranging from a debt crisis in the property sector to persistently low consumption and elevated youth unemployment. Moreover, several natural disasters this summer have added to the country’s woes, with at least 48 fatalities and tens of thousands displaced in northern China’s worst floods in years.
The ongoing trade tension with the United States has also taken a toll on the export-dependent economy. Despite indication that both Beijing and Washington are open to prolonging their truce on Stewarting tariffs, negotiations ended without an agreement earlier this week, leaving the 12th August deadline uncertain.
This latest development underscores the precarious state of China’s economic recovery and raises questions about the sustainability of its growth trajectory. As the world’s second-largest economy grapples with these headwinds, its global influence and economic stability have significant implications for the international community.
