China's factory activity unexpectedly contracted in July for the first time since February, as domestic orders slumped and typhoons disrupted production, while part of the front-loading momentum that had propped up exports began to unwind.
The official manufacturing purchasing managers' index fell to 49.2 from 50.3 in June, according to National Bureau of Statistics data released Friday, dropping below the 50-point threshold that separates expansion from contraction. Economists' median forecast had pegged the PMI at 50. The reading, the weakest since February, ended a four-month run at or above 50 that had been supported by exporters rushing shipments ahead of U.S. tariff increases.
The headline figure was dragged down by the new orders sub-index, which fell to 48.5, the lowest in 38 months, according to official data accessed via Wind. "Domestic weakness appears largely to blame – while the export orders index softened a bit," said Julian Evans-Pritchard, head of China economics at Capital Economics, who expects local governments to follow through on Beijing's policy support pledges to prop up domestic demand.
Weakness Beyond Manufacturing
- Construction PMI slumped to a record low of 47.0
- Services gauge fell to its weakest level since the initial Covid-19 lockdowns
- Composite PMI dropped to 49.3, the lowest since the pandemic ended in 2022
A statistics bureau spokesperson attributed part of the PMI weakness to a recent spate of typhoons that halted work on many projects. Despite the downbeat readings, indices tracking firms' expectations for future output held up well across all official PMIs in July, including an improvement in the construction sector. "Firms believe the latest deterioration in activity will prove short-lived, perhaps because they anticipate a stronger tailwind from fiscal policy over the rest of the year," Evans-Pritchard said.