China manufacturing PMI hits 18-month low in August
06:17, 31 August 2021
Factory activity in China expanded at the slowest pace in 18 months in August due to mobility restrictions and raw material prices.
The manufacturing purchasing manager’s index (PMI) was 50.1 in August compared with 50.4 in July, official data from the Chinese-language National Bureau of Statistics (NBS) – as cited by tradingeconomics.com – showed on Tuesday.
The data came below the market consensus of 50.2. A value above the 50-point marks an expansion, while anything below, points to contraction.
Non-manufacturing PMI shrinks
Although the manufacturing PMI figure came less than expected, the biggest shock came from non-manufacturing PMI which contracted to 47.5. It was the first contraction since February 2020, compared with 53.3 in July.
“The contraction in non-manufacturing activity was unexpected. Some negative factors, including government clampdowns, will continue to put downward pressure on the non-manufacturing PMI in the coming months,” Iris Pang, Greater China economist at ING, said in a note.
Pang viewed weakness in non-manufacturing PMI to continue in September on the back of several factors: Government clampdowns on technology firms and private tutoring centres, suspension of port operations due to coronavirus, and lower cross-province travels.
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Slowing economy in second half
Analysts at Nomura are cautiously optimistic that non-manufacturing PMI can make a swift rebound in September to 52 as long as no new COVID cases emerge.
Irrespective of such a hypothetical scenario, “the worse-than-expected August PMIs add conviction to our view that the growth slowdown in H2 could be quite notable, due to the Covid-19 Delta variant, cooling property markets, slowing exports, and the campaign to reduce carbon emissions,” said Nomura analysts.
ING’s Pang expected the government to rely on infrastructure projects as its top elixir to spur the domestic economy. Such a move would require more liquidity support from the central bank (to lower the cost of project financing), likely putting the yuan under pressure, she said.