China’s lower July manufacturing PMI signals moderate start to Q3; domestic activities remain soft

The fall in China’s manufacturing PMI for the month of July signalled a soft start to the third quarter of this year. The broad moderation seen in both the manufacturing and non-manufacturing PMIs was caused more by a backtracking in China’s domestic activities rather than the trade tensions with the United States.

Within the manufacturing sector, the production and new orders sub-indices slipped to 53.0 and 52.3 in July from 53.6 and 53.2 in June. The nonmanufacturing PMI slowed to an 11-month low of 54.0, with the construction activity and business services indices retreating to 59.5 and 53 in July, from 60.7 and 54 in June.

The ongoing deleveraging and unfavourable weather conditions may have both weighed on domestic activities in the month. The impact of trade tensions, however, appear to have caused no further deterioration from the previous month as the export orders index stayed unchanged at 49.8 in July after dipping below the 50-point threshold in June, ANZ Research reported.

"While this is likely to lift domestic sentiment over the medium term, we are mindful of whether China will shift back to pump-priming the economy," the report added.