China's factory activity contraction eases after trade war truce
iStock The strength of manufacturing in the months ahead is still in question given an uncertain export outlook, and especially as tensions rise again in recent days with Washington. China's factory activity contracted at a slower rate in May after a reprieve in the tariff war with the US unclogged trade flows, even as weak domestic demand continues to weigh on the economy.
The official manufacturing purchasing managers' index was 49.5, versus 49 in April, the National Bureau of Statistics said Saturday. That matched the median estimate of economists surveyed by Bloomberg. A reading below 50 indicates contraction.
The non-manufacturing measure of activity in construction and services fell to 50.3 from 50.4 in April, the statistics office said. That compares with a forecast of 50.5. The composite index rose to 50.4. The PMI figures are the first official data available each month to provide a snapshot of the health of the Chinese economy. The latest readings capture the initial aftermath of the trade truce, after Beijing and Washington agreed to reduce tariffs for 90 days beginning May 14.The strength of manufacturing in the months ahead is still in question given an uncertain export outlook, and especially as tensions rise again in recent days with Washington. Although the US lowered the average rate of tariffs to roughly 40% following talks in Geneva, that level is still enough to reduce American imports from China by around 70% over the medium term, according to estimates from Bloomberg Economics.
Even so, the reprieve on tariffs has sent trade between China and the US surging. Analysts surveyed by Bloomberg lifted forecasts for growth and exports this year following the agreement in Geneva, but still expect deflationary pressures to get worse in China, which has already seen economy-wide prices fall for two straight years. Gross domestic product is forecast to expand 4.5% this year, based on a Bloomberg survey conducted in late May, still significantly lower than the around 5% target set by Chinese policy makers. Economists expect exports will grow 1.1% in 2025 versus a year ago, an upgrade from the 1% contraction they expected in April.
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