China’s manufacturing PMI drops to 49.1 in August, signaling economic slowdown and increasing expectations for consumer-focused stimulus measures as infrastructure spending wanes.
Bollywood Fever: China’s manufacturing sector slowed to a six-month low in August, according to an official factory survey released on Saturday, raising expectations that policymakers may soon introduce new stimulus measures targeting households rather than infrastructure projects.
The official Purchasing Managers’ Index (PMI) fell for the fourth consecutive month to 49.1 in August, down from 49.4 in July, indicating contraction as it remained below the critical 50-mark. This result also missed the median forecast of 49.5 from a Reuters poll.
While the manufacturing sector struggled, China’s non-manufacturing PMI, which includes services and construction, showed slight improvement, ticking up to 50.3 from 50.2 in July.
The world’s second-largest economy has faced a rocky start to the second half of the year, with disappointing export figures, declining prices, and weak bank lending in July, all pointing to a loss of momentum.
Analysts had anticipated a stronger recovery following the lifting of China’s stringent COVID-19 restrictions in 2022, but the $19 trillion economy has yet to see the expected rebound.
In response, Beijing has indicated a potential shift away from its traditional strategy of heavy infrastructure investment.
Instead, the government has signaled support for boosting consumer spending, a move broadly welcomed by analysts.
However, many warn that additional policy measures will be necessary to achieve the government’s annual growth target of around 5%.
There have been some positive signs, such as better-than-expected retail sales in July, but the details of how China plans to revitalize its vast consumer market of 1.4 billion people remain unclear.
So far, officials have only pledged to “focus on boosting consumption to expand domestic demand.”
A major challenge to consumer confidence has been the prolonged slump in China’s property sector, which has seen home prices fall at their fastest pace in nine years in July.
With 70% of household wealth tied up in real estate, the downturn has led many consumers to cut back on spending.
According to a Reuters poll, home prices are expected to decline by 8.5% in 2024, deeper than the 5.0% drop forecasted in May.
As China’s economic recovery continues to struggle, the government’s ability to restore consumer confidence and drive domestic demand will be crucial to meeting its growth objectives.
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