China’s official PMIs eased further in July. Demand has remained weak, while adverse weather conditions have also weighed on activity. To support growth, the July Politburo meeting signaled a shift in short-term policy focus towards consumption and vowed to roll out more stimulus, Commerzbank’s Senior Economist Tommy Wu notes.

Official PMIs fall further

“China’s official manufacturing PMI remained in contraction territory (i.e. below 50) at 49.4 in July. By subcomponents, while production remained above 50, new orders and new export orders stayed below 50 for the third straight month, pointing to a softening in both domestic and external demand. This also suggests that industrial production, which grew 5.3% yoy in June, will likely soften in the near term.

“The official non-manufacturing PMI eased further to 50.2 in July. In particular, the construction subindex fell to 51.2, the lowest in a year. Adverse weather conditions over the past month or so have affected construction activity. Meanwhile, the services subindex fell to 50.0, the lowest in seven months. The soft July official PMIs and the slower-than-expected Q2 GDP growth of 4.7% yoy call for the need for faster implementation of policy stimulus.”

“The statement from the Politburo meeting acknowledged that the external environment is unfavorable and that domestic demand remains insufficient. It said ‘the focus of economic policies needs to 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 towards supporting demand.”