China’s factory activity shrank for the first time in seven months in May and growth in the services sector cooled, evidence that the world’s second-largest economy is losing further momentum in the second quarter.
According to Reuters, the HSBC/Markit Purchasing Managers’ Index for May dropped to 49.2, the lowest level since October 2012 and down from 50.4 in April, as domestic and overseas demand fell.
The figure was slightly lower than a preliminary reading of 49.6 released on May 23. Fifty divides expansion from contraction compared with the month before.
China’s economic growth surprised financial markets by weakening in the first quarter and that trend may not have changed, said Zhiwei Zhang, chief China economist at Nomura in Hong Kong.
“We think China’s economic growth will probably continue to slide,” he said. “Our forecast of GDP growth in Q2 is to slow to 7.5 per cent from 7.7 per cent in Q1.”
The MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS gave up as much as 0.2 per cent to hit its lowest level in nearly seven weeks after the data, while Australian shares dipped before stabilizing.
Hong Kong and Shanghai shares both lost some gains to stand up 0.4 per cent and 0.1 per cent, respectively.
“The downward revision of the final HSBC China Manufacturing PMI suggests a marginal weakening of manufacturing activities towards the end of May, thanks to deteriorating domestic demand conditions,” said Qu Hongbin, chief China economist at HSBC.
In the HSBC manufacturing PMI, compiled by UK-based Markit Group Ltd, the sub-index for total new orders dipped to 48.7, the first time it has retreated below 50 since last September and the new export orders sub index was below 50 for the second consecutive month.
The indexes suggested falling demand from both domestic and overseas firms.
China’s official manufacturing PMI, released on Saturday, rose but remained close to 50. It ticked up to 50.8 in May from April’s 50.6, although it also pointed to falling orders from export markets.
The Chinese government’s official PMI for the non-manufacturing sector, released earlier on Monday, also pointed to a loss of growth. It fell to 54.3 in May from 54.5 in April, the lowest since September last year.
The figures add to evidence China’s economy is struggling for momentum, buffeted by weak exports demand and overcapacity in some industrial sectors.
The government is also attempting to rein in credit growth, a lot of which is not finding its way into productive investment but into speculative areas such as property.
The IMF and OECD last week cut their forecasts for 2013 economic growth to 7.75 per cent and 7.8 per cent, respectively.
China’s annual economic growth slowed to 7.7 per cent in the first quarter from 7.9 per cent in the previous quarter.
The full-year annual growth of 7.8 per cent in 2012 was the weakest since 1999.
The IMF’s cut brings it into line with recent revisions by private institutions, including Bank of America-Merrill Lynch, which pared its forecast this month to 7.6 per cent from 8 per cent, and Standard Chartered, which cut its estimate to 7.7 per cent from 8.3 per cent.
ING last month reduced its prediction to 7.8 per cent from 9 per cent.