China: Weak PMIs call for policy stimulus – Commerzbank

China’s official PMIs weakened further in July. Demand has remained weak, while adverse weather conditions have also weighed on activity. To support growth, the July Politburo meeting signalled a shift in the short-term policy focus towards consumption and pledged to deploy further stimulus, notes Tommy Wu, senior economist at Commerzbank.

Official PMIs fall further

“China’s official manufacturing PMI remained in contraction territory (i.e. below 50) at 49.4 in July. By subcomponent, while output remained above 50, new orders and new export orders both remained below 50 for the third consecutive month, pointing to weakening in both domestic and external demand. This also suggests that industrial production, which grew 5.3% year-on-year in June, is likely to weaken in the near term.

“The official non-manufacturing PMI weakened further to 50.2 in July. In particular, the construction sub-index fell to 51.2, the lowest in a year. Adverse weather conditions over the past month or more have weighed on construction activity. Meanwhile, the services sub-index fell to 50.0, the lowest in seven months. The weak official July PMIs and slower-than-expected second-quarter GDP growth of 4.7% year-on-year call for the need for faster implementation of policy stimulus.”

“The Politburo meeting statement acknowledged that the external environment is unfavorable and domestic demand remains insufficient. It said that ‘the focus of economic policies should shift toward benefiting people’s livelihood and promoting spending.’ This means that while Beijing’s long-term policy focus is on the supply side, the short-term goal is shifting toward supporting demand.”