China Faces Economic Setback As Manufacturing Activity Contracts In May

China's manufacturing activity unexpectedly fell in May, according to an official factory survey on Friday, sparking continued calls for fresh stimulus amid a prolonged property crisis affecting businesses, consumers, and investors.

The official Purchasing Managers' Index (PMI) dropped to 49.5 in May from 50.4 in April, falling below the 50-mark that separates growth from contraction.

This result also missed a median forecast of 50.4 in a Reuters poll.

Despite solid first-quarter GDP data reducing some urgency for additional stimulus, analysts remain uncertain whether the recent momentum can be sustained as Chinese authorities strive to stabilise the crisis-hit property sector.

On Wednesday, the International Monetary Fund (IMF) revised up its China growth forecast by 0.4 percentage points to 5 per cent for 2024 and 4.5 per cent for 2025.

However, the IMF cautioned that the property sector remains a significant growth risk.

The property sector's troubles have negatively impacted various areas of China's economy, slowing Beijing's efforts to shift its growth model towards domestic consumption rather than debt-fueled investment.

Retail sales last month grew at their slowest rate since December 2022, although data on factory output, trade, and consumer prices for April indicated that the $18.6 trillion economy might finally be turning a corner.

This month, China introduced what it called "historic" steps to stabilise the property market, but analysts believe these measures are insufficient for a sustainable recovery.

The IMF suggested that there is "scope for a more comprehensive policy package to address property sector issues."

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