Chinese Factory Activity Declines Faster Than Expected

Factory activity in China contracted faster than expected in May due to weak demand, increasing pressure on policymakers to support the uneven economic recovery. The official Manufacturing Purchasing Managers' Index (PMI) fell to 48.8 in May from 49.2 in April, according to data from the National Bureau of Statistics. This marks the lowest level of the index in five months and falls below the 50-point threshold that separates growth from contraction. The PMI also defied expectations for a rise to 49.4. Meanwhile, the services sector grew at its slowest pace in four months in May, with the official Non-Manufacturing Purchasing Managers' Index dropping to 54.5 from 56.4 in April. These readings triggered declines in Asian markets, with the yuan, Australian dollar, and New Zealand dollar all falling, and regional stocks significantly dipping. Bruce Pang, chief economist at Jones Lang LaSalle, stated, "The PMI data reveals that China may be heading toward an unstable recovery. Weak domestic demand could impact China's sustainable growth if there are no effective policy moves for broad recovery." The Chinese economy is emerging from a three-year lockdown due to the COVID-19 pandemic.