Trade war 'snuffs out nascent recovery' in Chinese manufacturing, official PMI shows
A closely-followed survey of manufacturing sector conditions in China fell much more sharply than anticipated, as respondents reacted to the escalation in the US-China trade war earlier in the month.
The government-compiled Chinese manufacturing sector Purchasing Managers' Index slumped from a reading of 50.1 for April to a three-month low of 49.4 in May (consensus: 9.9), amid a drop in new orders, especially those from overseas clients.
The sub-index for new orders dropped from 51.4 to 49.8, while that for new export orders crashed from 49.2 to 46.5 "snuffing out the nascent recovery" said Freya Beamish at Pantheon Macroeconomics.
Stockpiling of raw materials declined further too, reversing the trend seen ahead of the 1 April reduction in VAT, which had boosted output, Julian Evans-Pritchard at Capital Economics said.
Granted, analysts track the private sector compiled PMI (which was set for release on Monday) more closely because that from the government has sent false signals in the past.
"But for now, the official PMIs suggest that growth remains under pressure, consistent with our view that there are still some downside risks to near-term activity," Evans-Pritchard at Capital Economics.
A separate PMI linked to activity in the country's services sector meanwhile held at 54.3, even as a sub-index tracking activity in construction hit a 15-month low.
That, Evans-Pritchard said, "suggests that infrastructure spending may be losing steam as the front-loading of fiscal support wanes."
Freya Beamish at Pantheon Macroeconomics was even more cautious in her assessment, telling clients: "The pullback in the manufacturing PMI clearly shows how Q1 mostly was a fluke and that China’s recovery isn’t guaranteed.
"We maintain our view that economic indicators will ebb this quarter, with the downside exacerbated by the renewed trade tensions."