CHINA’S manufacturing activity showed some stability but continued to be weak overall in June as it shrank for a fourth straight month, a survey showed yesterday.
The generally weak activity may pave the way for further government stimulus, according to market observers.
The HSBC Flash China Manufacturing Purchasing Managers’ Index, the earliest available indicator of China’s industrial sector, edged up to 49.6 this month from the final reading of 49.2 in May and 48.9 in April, HSBC and research firm Markit said.
The reading was still below the demarcation line of 50, and it was the fourth straight month activity contracted after a brief rebound in February.
Annabel Fiddes, an economist at Markit, said June’s reading provided a mixed picture.
“On the one hand, the manufacturing sector shows signs of improvement as production stabilized amid a slight pickup in total new work, while purchasing activity also rose slightly,” Fiddes said.
“On the other hand, manufacturers continued to cut their staff numbers, with the latest reduction the sharpest in more than six years.”
Fiddes said this suggested that companies have cut growth hopes due to subdued demand at home and abroad.
“The data add to evidence that the sector has lost growth momentum in the second quarter as a whole, and indicates that China may step up the efforts to stimulate growth and job creation in the second half of the year,” Fiddes said.
China has cut interest rates and reserve requirement ratio in the past few months, along with other fiscal stimulus, to bolster a softening economy.
Some economists forecast China’s economic growth may fall below the annual target of 7 percent after growing 7.4 percent in 2014.
“The new data, plus the soft figures for investment and trade released earlier, suggest that China’s economic growth could miss 7 percent in the second quarter,” said Zhou Hao, an economist at Australia & New Zealand Banking Group Ltd.
In the first three months, China’s economy rose 7 percent to notch the weakest quarterly growth in six years.
The World Bank Group said earlier that China’s economic growth will ease to around 7 percent this year. The Asian Development Bank forecast China’s growth may cool to 7.2 percent this year.