(Bloomberg) -- The outlook for China’s manufacturing sector deteriorated more than expected in May, as weakness in the domestic economy combined with escalation in the trade standoff with the U.S.
- The manufacturing purchasing managers’ index dropped to 49.4, according to data released by the National Bureau of Statistics on Friday. That’s worse than the 49.9 forecast in a Bloomberg survey of economists. The non-manufacturing gauge remained steady to 54.3. A reading below 50 signals contraction.
Key Insights
- A sub-index gauging new export orders fell further into contraction suggesting that exporters felt the squeeze of renewed tariff threats from the U.S. and waning global demand
- Weak factory sentiment implies that the apparent recovery in the first half has been short-lived amid a sudden escalation of the trade war. Policymakers may be forced to take bolder easing steps, although the weakening yuan is a constraint
- “The momentum of the economy is continuing with the softer trend we saw in April,” Grace Ng, a China economist at JPMorgan Chase & Co (NYSE:JPM). in Hong Kong, said on Bloomberg Television. “Now on top of that, there is the complication from the escalation of tariffs from the U.S. which will then drag on the export sector which will feed through to the domestic economy.”
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- The deterioration in May was foreshadowed by Bloomberg’s deck of early indicators which showed weakness in stocks, copper prices and lower confidence among small firms
- The outlook worsened across all enterprise size categories, though by the most among small companies. The index there slumped to 47.8 from 49.8.
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(Updates with chart under first bullet.)