China: Factory activity continued to shrink but more positive than last month

China: Factory activity continued to shrink but more positive than last month


Chinese factory activity declined at a slower rate in May 2022 as the country eased anti-COVID-19 lockdown measures in some cities. 

However, restrictive measures continued to weigh on demand and production, casting doubt on economic growth in the second quarter.

Data from the National Bureau of Statistics (NBS) showed a manufacturing purchasing managers index (PMI) of 49.6, higher than the forecast given by of 48 and 47.4 for the month. before.

Although the PMI hit a three-month high, it remained below the 50-point mark for the third month in a row. This has hit production lines in other major Asian economies, with both Japan and South Korea also reporting declines in output.

"It shows that the impact of the COVID-19 outbreak in May is not over yet, making the economic outlook worse since the second quarter of this year," Huaxing Securities chief economist Pang Ming told Reuters. 2020”. The declines in China's midstream and downstream output were larger than those in the upstream, Pang added, and small businesses were hit harder than large firms.

Although Shanghai and other major manufacturing hubs in the northeast eased restrictions earlier this month, some investors see a slow recovery in consumption, constrained by domestic consumption. sluggish locality and falling global demand.

Although activity has begun to recover as COVID-19 containment measures ease, the recovery is likely to remain muted, according to economist Sheana Yue, according to Capital Economics economist Sheana Yue. of Capital Economics told Reuters.

“Indeed, there continued to be signs of supply chain disruption in the survey…delivery times extended further while companies continued to reduce their raw material inventories, albeit with slower pace than in April."

The country's worst Covid-19 outbreak since the pandemic began in 2020, and subsequent lockdown measures have had a direct impact on the economy. Profits at China's industrial firms fell at the fastest pace in two years in April 2022, with high raw material prices and supply chain chaos eroding profit margins.

The services sector also remained low, with the non-manufacturing PMI in May at 47.8. However, this is higher than April's 41.9.

With consumers constrained, retail sales in April fell 11.1% year-on-year, the steepest decline since March 2020. Food service and auto sales were hit. particularly affected, and activity in high exposure sectors remained down, suggesting that pressure on the service sector remains.

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