China's economy may be heading for a slowdown
What's the story
China's factory activity has unexpectedly contracted in July, hitting a six-month low. The official manufacturing purchasing managers' index (PMI) fell to 49.3, down from June's 49.7, the National Bureau of Statistics announced today. This is lower than the median estimate of economists surveyed by Bloomberg, which was also 49.7. A PMI reading below 50 indicates contraction in manufacturing activity and signals economic slowdown.
Service sector
Non-manufacturing PMI also falls
The non-manufacturing PMI, which measures the activity in construction as well as services, also fell to 50.1 from last month's 50.5. This is also lower than the forecasted figure of 50.2.
Weather impact
Adverse weather conditions disrupt manufacturing industry
The NBS has attributed the contraction in factory activity to adverse weather conditions, including high temperatures, heavy rain, as well as flooding in some areas. These factors have disrupted the manufacturing industry, which typically enters "the traditional off-season" in July. The PMI figures are among the first official data released each month to gage China's economic health.
Trade concerns
Trade activity showing signs of slowdown
Despite a record trade surplus in the first half of the year, China's economic resilience is now facing headwinds. Cargo throughput at the country's ports last week was the lowest in nearly three months, falling almost 7% from the previous week. This could be an early sign of a slowdown in trade activity.
Consumption concerns
Concerns over weak domestic demand
Weak domestic demand and consumption could further worsen deflationary pressures in China's economy. A recent central bank survey revealed that Chinese households are more pessimistic about the economy and job market than ever before. This has raised concerns of a possible economic slowdown in the second half of the year, despite strong performance in the first six months exceeding official annual expansion targets.