Factory activity in China expanded at a slower pace than expected in August, likely indicating a wider slowdown in the country's economic recovery. China's services sector also fell into contraction during the same month, further increasing concerns.
Compared to other nations, China was quick to recover from the pandemic-induced economic slump last year. However, new official data seems to indicate that the momentum may be weakening. Analysts said factors such as the resurgence of new COVID-19 cases, high raw material prices, tighter regulations, and slowing exports could be major contributing factors.
Data published by the National Bureau of Statistics showed that the country's official manufacturing Purchasing Manager's Index dropped to 50.1 in August. This was a slight drop from the 50.4 points recorded in July.
While the PMI is barely holding above the 50-point mark, which separates growth from contraction, the official non-manufacturing PMI for August fell to 47.5 points. This was a significant drop from the 53.3 points recorded in July.
"The worse-than-expected August PMIs add conviction to our view that the growth slowdown in H2 could be quite notable," analysts at Nomura said.
Despite the dip, analysts expect China to continue its tightened policies, particularly in the hot property sector and high-polluting industries. However, if the situation worsens, analysts expect China to impose near-term supporting policies to boost spur economic growth.
Analysts expect the Chinese central bank to implement further cuts to the amount of cash banks must hold later this year. This will be on top of last months' cut, which released roughly $6.47 trillion in long-term liquidity into the nation's economy.
As for its services sector, analysts expect a gradual recovery as the nation slowly eases its COVID-19 restrictions. Economists said the sudden rise in new cases came as a shock to the service industry, which is still struggling to return to pre-pandemic levels.
While construction activity grew at its fastest pace since March, industries such as catering, entertainment, hospitality, and transportation significantly slowed down, the NBS data showed.
Thanks to its immediate response to the latest surge, China has largely contained the new outbreak. Authorities had even shut down major ports after detecting just a single case.
