China’s official factory gauge fell more than expected in June, just as the world’s two biggest economies head toward a trade war. The manufacturing purchasing managers index stood at 51.5 in June, versus 51.9 in May, and the forecast of 51.6 in a Bloomberg survey of economists. The non-manufacturing PMI, covering services and construction, rose to 55, the statistics bureau said, compared with 54.9 in May. Levels above 50 indicate improvement.
A weakening domestic economy is the last thing policy makers need amid an escalating trade conflict, with both the US and China threatening tariffs on tens of billions of dollars in trade from July 6. Partly in response to the darkening outlook, the central bank signalled a shift to focus more on supporting growth, and was more cautious on a campaign to drive down debt that has caused credit growth to slow.
“China’s economy will slow down for the rest of the year, but we don’t need to worry about any stall yet,” said Zhu Qibing, chief macroeconomy analyst at BOC International China. “The key is how international trade and the dispute between China and US will evolve.”
A sub-index of new export orders fell to 49.8 from 51.2, signalling weakening demand from other countries.
“As the trade friction between United States and China escalates, exports start to ebb,” China Federation of Logistics & Purchasing, which conducts the PMI survey with the NBS, said in a statement released with the data. “In previous months, the companies expedited exports because they had foreseen this complicated situation of international trade.”