The official manufacturing PMI stayed below 50 for a third month in July; services PMI fell to 50. Real activity growth may have eased due to sluggish demand; export growth likely stayed robust. CPI inflation likely edged up; credit growth may have rebounded, while money growth likely fell again, Standard Chartered economists Hunter Chan and Shuang Ding note.

Domestic demand remains subdued

“China’s official manufacturing PMI fell to 49.4 in July from 49.5 in June, in line with market expectations and staying in contractionary territory for a third straight month. Domestic demand remained sluggish, with the new orders PMI falling further below 50, while the new export orders PMI rose. We, therefore, expect industrial production (IP) growth to have slowed to 4.5% y/y in July from 5.3% in June.”

“The services PMI eased further by 0.2pts to a YTD low of 50 in July, weighed down by retail sales, real estate and financial market services. Retail sales growth may have rebounded due to a low base, while the 3Y CAGR likely slowed further. Export growth likely remained resilient, bridging the gap between relatively robust production and weak domestic demand.”

“We expect CPI inflation to have edged up on higher pork and fuel prices, while PPI deflation may have deepened on falling metal and petrochemical prices. We think the fall in loan prime rates (LPRs) following the policy rate cut may have supported loan demand. Meanwhile, CNY loan growth likely stabilised. Deposits likely dropped more than seasonal patterns, as banks lowered deposit rates.”