Activity in the manufacturing industry has decreased significantly

Bad news on the health of China’s economy follows one another. while China saw its contraction in the second quarter almost stop, activity in the manufacturing industry has slowed considerably. After recovering in June following the lifting of restrictions, it unexpectedly contracted in July in the context of new health fears, a pessimistic economic outlook, and a drop in demand. This is what emerged from the publication, this Sunday, of the PMI manufacturing index by the National Bureau of Statistics. The latter fell to 49 in July against 50.2 in the previous month. So it falls below the threshold of 50 that separates growth from decline in activity. Surprise is important. Analysts polled by Reuters had actually expected an increase of 50.4. This is the weakest performance of this index in the last three months. Production, new orders and employment sub-indices were all below 50.

“China’s economic development level has declined, the fundamentals of recovery still need consolidation,” Zhao Qinghe, chief statistician of the National Bureau of Statistics, said in a statement.

According to him, the reasons for this fall are many: “traditional low production period, insufficient release of market demand and the reduction of industries with high energy consumption”. One of the main reasons for this return is the continued decline in activity in the oil, coal and refinery sectors.

Manufacturing continues to face high commodity prices, squeezing profit margins, while export prospects are weak due to fears of a global recession. Zhao Qinghe added that the sharp changes in commodity prices have led some companies to take a wait-and-see approach, “weakening purchase intentions.”

Decrease in demand

The proportion of companies that say there is insufficient market demand has also increased for four consecutive months, the statistician said, saying that this is the “main difficulty” for manufacturers. This weakness in demand has hindered the recovery, said Bruce Pang, chief economist at Jones Lang Lasalle Inc, in a research note: “Growth in the third quarter may face greater challenges than expected , because recovery is slow and weak. . »

China’s growth collapsed and almost stopped in the second quarter

Despite the partial lifting of Covid-related restrictions in major cities such as Shanghai and Beijing, the country’s lockdowns are worrying businesses and consumers.

Especially since the authorities don’t seem to want to abandon the zero Covid policy. In a Politburo meeting this week, officials explained that fighting the pandemic remains a priority over achieving economic and social goals.

China’s leaders originally set a full-year GDP growth target of around 5.5%, but with economic growth of just 0.4% in the second quarter, analysts say this is unlikely. objective achieved.

China’s non-manufacturing PMI also fell to 53.8 points in July from 54.7 in June, according to data from the National Bureau of Statistics on Sunday. It follows policies aimed at boosting consumption and sustaining construction activities, according to the same source.

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IN JAPAN, INDUSTRIAL ACTIVITY RETURNED IN JUNE

Industrial production in Japan rebounded strongly in June according to figures published on Friday, mainly under the impact of the removal of containment in Shanghai, which caused in May the sharpest decline in two years in manufacturing activity. in Japan. This indicator returned to 8.9% in June a month, according to an initial estimate from the Ministry of Economy, Trade and Industry (Meti).

It fell 7.5% in May as a result of supply chain disruptions linked to China’s health restrictions. The consensus economists of the Bloomberg agency definitely expect a rebound in June, but not very significant (+4.2%). Shipments of Japanese-made products also recovered in June (+4.6% in a month), as well as inventories (+2.1%), according to Meti. The automotive industry, electrical machinery, computers and electronics were the sectors that contributed the most to the recovery of industrial production in Japan in June, according to the ministry. Japanese manufacturers surveyed monthly by Meti expect a further increase in production in July-August.

(with AFP and Reuters)