China’s official PMI shows industry slowdown and service contraction

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BEIJING (Reuters) – China’s businesses and economy came under increasing pressure in August as manufacturing activity expanded at a slower pace while the services sector tumbled into contraction, raising the possibility of more near-term support to boost the growth.

The official industry’s Purchasing Managers Index (PMI) fell to 50.1 in August from 50.4 in July, data from the National Statistics Agency showed on Tuesday, remaining just above the mark of 50 that separates growth from contraction.

Analysts polled by Reuters had expected a drop to 50.2.

“Worse-than-expected PMIs add to the conviction of our view that the growth slowdown in the second half could be quite remarkable,” Nomura economists wrote in a statement.

“We hope Beijing will maintain its combination of ‘targeted tightening’ for some sectors, especially real estate and highly polluting industries, complemented by ‘universal easing’ for the rest of the economy.”

The manufacturing PMI showed demand fell sharply, with new orders contracting and a measure of new export orders falling to 46.7, the lowest reading in more than a year. Factories also laid off workers, at the same pace as in July.

Adding to signs of an economic slowdown, restrictions related to Covid-19 have pushed the service sector into a sharp contraction for the first time since the pandemic peaked in February last year.

The official services PMI came in at 47.5 in August, well below the 53.3 mark in July, the agency’s data showed.

The official Composite PMI, which includes both manufacturing and services activity, fell to 48.9 in August from 52.4 in July.

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