News Brief

China Faces Economic Setback As Manufacturing Activity Contracts In May

Kuldeep Negi

May 31, 2024, 12:14 PM | Updated 12:14 PM IST

Chinese President Xi Jinping (Representative Image) (Twitter/@realXi_Jinping)
Chinese President Xi Jinping (Representative Image) (Twitter/@realXi_Jinping)

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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Kuldeep is Senior Editor (Newsroom) at Swarajya. He tweets at @kaydnegi.

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