08:02
Chinese factory growth slows as demand stumbles
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
It’s manufacturing PMI day – but the monthly check-up of factory activity from purchasing managers’ index surveys around the world has got off to a fairly tepid start with the news of the slowest growth in output from China’s manufacturing sector since April 2020.
China’s Caixin PMI came in at 50.3 for July – still above the 50 growth mark but lower than the 51 forecast by economists. It was the lowest reading since the contraction of April 2020 as the virus hit the global economy.
China and other Asian economies were hit by rising costs, and new waves of the Delta variant of the coronavirus have cast a shadow over demand. Factory output rose in both Japan and South Korea, the other large east Asian economies, but supply chain shortages and raw material shortages bit.
Freya Beamish, chief Asia economist at Pantheon Macroeconomics, said:
We remain worried about a period of weakness in manufacturing, with exports and production well above pre-pandemic trends. The sharper drop in the Caixin PMI—more aligned to smaller and exporting firms—to 50.3, from 51.3 in June, underlines the precariousness of foreign trade. New export orders were a serious drag in the official index too.
Analsysts at Deutsche Bank led by Jim Reid highlight that the manufacturing struggle is not limited to the very largest Asian economies:
Other economies in the region also posted weak manufacturing readings as they grappled with a surge in infections. Indonesia (at 40.1 vs. 53.5 last month) posted its worst reading in 13 months while Thailand’s reading slipped to 48.7 from 49.5 and Philippines manufacturing PMI dipped to 50.4 from 50.8. Vietnam’s manufacturing PMI continued to remain in contractionary territory with a reading of 45.1
What does this mean for the UK manufacturing sector, due its own PMI number at 9:30am BST? The short-term read-across is probably limited, with economists expecting signs of a continuing boom in output. A poll of 13 economists by Reuters suggests nobody expects the index to fall below 60, far above the 50 mark which signals an expansion. However, any slowdown in the Chinese economy would likely feed through to the UK eventually, even if the vaccine programme does mean there is no return to lockdowns.
The agenda
- 9am BST: Eurozone manufacturing purchasing managers’ index (PMI) (July)
- 9:30am BST: UK manufacturing PMI (July)
- 3pm BST: USA manufacturing PMI (July)