China’s factory output shrank in July for the first time in five months. The official manufacturing PMI fell sharply to 49.2 from June's 50.3, missing forecasts and signaling a contraction. Readings below 50 indicate a decline, and new orders sank to 48.5, the weakest point since 2023.
The trend wasn’t limited to government data. The private S&P Global/Caixin manufacturing PMI also declined to 49.5, reinforcing that the slowdown is widespread. Export orders slipped below the growth threshold, dropping to 49.6, while production dipped just below 50. Employment stayed weak at 49.0. Non-manufacturing sectors followed suit, with their PMI dropping to 49.0, pointing to broader economic softness.
Factors Behind the Decline and Market Impact
The contraction reflects several pressures. Domestic demand remains lackluster despite policy efforts. Export momentum faded as manufacturers unwind shipments made to avoid anticipated tariffs earlier this year. Rising input costs, fueled in part by geopolitical tensions in the Middle East, are squeezing margins amid soft demand. Typhoon disruptions further hampered operations.
Analysts highlight the significance of the new orders index at 48.5 as a forward-looking indicator, suggesting production could remain subdued in coming months. The yuan’s performance will be a key factor to watch moving forward.
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