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PMI survey data for mainland China signaled a strong rebound in
economic activity across both manufacturing and services in June as
pandemic-related restrictions were eased. New business inflows also
rose, albeit to a less marked extent, with demand reportedly again
restrained by COVID-19 restrictions which, although loosened,
remain tighter than in other major economies. Price pressures
meanwhile also remained subdued, often linked to sluggish demand
growth associated with the ongoing health measures designed to
fight the pandemic as China persists with is 'zero-covid'
policy.
Broad-based growth resumes in June
Business activity surged higher across mainland China in June,
according to Caixin PMI survey data compiled by S&P Global. The
survey's output index covering both manufacturing and services
jumped over 13 points - a gain only exceeded over the past 22 years
of survey history by that seen in March 2020. The latest reading
therefore signals a strong return to growth after three consecutive
monthly steep declines. Barring the early months of recovery from
the initial pandemic lockdowns, the latest gain was the largest
recorded for over a decade.
Business activity rebounded in both manufacturing and services
in June as COVID-19 containment measures were partially relaxed.
While manufacturers reported the steeper rate of expansion,
enjoying the second-largest increase in production since the start
of 2011, service providers also reported a marked improvement, with
output growing at the strongest rate since July 2021.
Demand shows less impressive rebound
The improvements in output were principally a reflection of
greater activity being facilitated by looser COVID-19 restrictions.
Firms were often able to reduce their backlogs of work, which had
accumulated due to the pandemic-related restrictions imposed to
fight the Omicron variant. These backlogs fell notably in
manufacturing and rose only very modestly in services as a
result.
Although the easing of COVID-19 containment measures also helped
drive a return to growth of new business for the first time since
December, the rebound in orders was notably less marked than the
recovery of activity. This divergence hints that activity growth
could weaken again in July absent a further upturn in demand
growth, especially given the pull-back in indicators of backlogs of
orders.
Prices merely stabilise
Average prices charged for goods and services were meanwhile
steady in June, contrasting with marginal declines seen over the
prior two months. Despite the rebound from the Omicron-related
containment measures, manufacturing prices fell for a second
successive month in June and rates charged for services rose only
marginally, the rate of inflation in fact cooling slightly from
May.
Outlook
The relatively subdued rebound in demand in June and the
accompanying modest upward pressure on prices (and, in the case of
manufacturing, falling prices) to a large extent reflect the
persistence of COVID-19 containment measures. Despite some of the
restrictions being eased in May and June, the overall degree of
containment remains high according to S&P Global's calculations
(see chart). What's more, given the government's zero-covid policy,
restrictions also look set to remain problematic for demand growth
at least until the end of the year.
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
