BEIJING (Reuters) - China’s factory activity contracted unexpectedly in July after bouncing back from COVID-19 lockdowns the month before, as fresh virus flare-ups and a darkening global outlook weighed on demand, a survey showed on Sunday.
The official manufacturing purchasing managers’ Index (PMI) fell to 49.0 in July from 50.2 in June, below the 50-point mark that separates contraction from growth, the National Bureau of Statistics (NBS) said.
Analysts polled by Reuters had expected it to improve to 50.4.
“The level of economic prosperity in China has fallen, the foundation for recovery still needs consolidation,” NBS senior statistician Zhao Qinghe said in a statement on the bureau website.
Continued contraction in the oil, coal and metal smelting industries was one of the main factors pulling down the July manufacturing PMI, he said.
The reading was the lowest in three months, with sub-indexes for output, new orders and employment all contracting.
Chinese manufacturers continue to wrestle with high raw material prices, which are squeezing profit margins, as the export outlook remains clouded with fears of a global recession.
Weak demand has constrained recovery, Bruce Pang, chief economist and head of research at Jones Lang Lasalle Inc, said in a research note. “Q3 growth may face greater challenges than expected, as recovery is slow and fragile.”
The official non-manufacturing PMI in July fell to 53.8 from 54.7 in June. The official composite PMI, which includes manufacturing and services, fell to 52.5 from 54.1.
China’s economy barely grew in the second quarter amid widespread lockdowns, and top leaders recently signaled their strict zero-COVID policy would remain a top priority.
Policymakers are prepared to miss their GDP target of “around 5.5%” for this year, state media reported after a high-level meeting of the ruling Communist Party.
Beijing’s decision to drop mention of the growth target has doused speculation that the authorities would roll out massive stimulus measures, as they often have in previous downturns.
Capital Economics says that policy restraint, along with the constant threat of more lockdowns and weak consumer confidence, is likely to make China’s economic recovery more drawn-out.