China’s twin PMI figures reveal mixed economic health

China's twin PMI figures reveal mixed economic health

China’s manufacturing PMIs for June painted a mixed picture for the world’s second-largest economy, prompting renewed calls for additional stimulus amid ongoing economic recovery challenges.

According to official data released on Sunday, manufacturing activity declined for the second consecutive month, with the Purchasing Managers’ Index (PMI) from the National Bureau of Statistics (NBS) remaining unchanged at 49.5.

This indicates that the sector continued to contract, reflecting ongoing challenges despite forecasts matching economist expectations.

On the other hand, China’s Caixin manufacturing PMI painted a more optimistic picture, revealing robust growth in June. The index rose to 51.8, marking its highest level in over three years and surpassing expectations.

This growth trend, sustained for eight consecutive months, suggests resilience in the manufacturing sector, which has remained above the 50-point threshold indicating expansion.

“We think economic activity will continue to hold up relatively well in the coming months. While the latest property stimulus has done little to boost new home sales, fiscal stimulus and strong exports should continue to support growth, at least in the near term,” said Zichun Huang, China Economist at Capital Economics.

Despite these positive signs in manufacturing, China faces significant economic hurdles. These include deflationary pressures, subdued consumer confidence, and financial strains in the real estate market.

The property sector, in particular, has struggled due to high debt levels and reduced interest in property purchases, posing challenges to overall economic stability.

Looking ahead, China has set an ambitious economic growth target of around 5 per cent for the year. Achieving this goal will require addressing structural issues in the real estate market and implementing broader economic reforms to bolster investor confidence and sustain growth momentum.

Fitch’s recent downgrade of China’s long-term outlook to negative highlights concerns over the economy’s heavy reliance on the property sector and ongoing deflationary risks.

These dynamics necessitate a careful balance by policymakers between fostering economic growth and ensuring resilience against persistent challenges.