Did China's economy lose some momentum in June?

Analysts said China’s factory activity was largely unchanged in June despite the official manufacturing purchasing managers’ index (PMI) remaining in contraction for a second consecutive month at 49.5 in June, unchanged from May. Within the official manufacturing data, the new export order subindex also remained unchanged at 48.3. Readings of the subindexes gauging new orders, raw material inventory and employment also remained below 50, while the reading for suppliers’ delivery times fell to 49.5 from 50.1 in May. Only the production subindex remained above the watershed level of 50, but still dropped to 50.6 from 50.8 – indicating slowing manufacturing expansion. In contrast, the Caixin/S&P Global manufacturing PMI rose to 51.8 in June from 51.7 the previous month, marking the fastest rise since May 2021 and surpassing analysts’ forecasts.

China’s official non-manufacturing PMI – a measure of sentiment in the service and construction sectors – fell to 50.5 in June from 51.1 in May, remaining in expansion territory for the sixth straight month. Within the non-manufacturing PMI, the business activity index for the construction sector dropped to 52.3 from 54.4 in May. The official services PMI subindex also declined from 50.5 to a five-month low of 50.2. “Although government bond issuance started to reaccelerate in May, it appears that this has yet to feed through to stronger infrastructure spending,” said analysts at Capital Economics. The Caixin/S&P Global services PMI aligned with a broader official PMI as it eased to 51.2 from 54 in May, marking the lowest reading since October 2023 but remaining in expansionary territory for the 18th straight month.

China’s official composite PMI, which tracks both the services and manufacturing sectors, declined from 51 in May to 50.5 in June. Analysts at Capital Economics said this was the official composite PMI's lowest reading this year. Meanwhile, the Caixin/S&P’s composite PMI fell to 52.8 from 54.1, but remained in expansionary territory since November.

Analysts at Capital Economics said the PMIs for June suggested that the recovery lost some momentum last month. “The manufacturing surveys may have been weighed down by negative sentiment due to recent tariff announcements from the U.S. and the EU, however,” they said. “In practice, we doubt the near-term strength in exports will be derailed by tariffs. Together with increased fiscal spending supporting domestic demand, this will keep growth relatively strong over the coming months.”

“Recent macro-economic data show that the economy continues to recover, with stable production, demand, employment and prices, as well as strong exports,” according to Caixin Insight Group, as reported by the South China Morning Post.