© Reuters. FILE PHOTO-An employee works on the production line of Nio electric vehicles at a JAC-NIO manufacturing plant in Hefei, Anhui province, China August 28, 2022. China Daily via REUTERS
BEIJING (Reuters) -China’s factory activity contracted faster than expected in May on weakening demand, heaping pressure on policymakers to shore up a patchy economic recovery and knocking Asian financial markets lower.
The official manufacturing purchasing managers’ index (PMI) was 48.8 from 49.2 in April, according to data from the National Bureau of Statistics (NBS), its lowest in five months and below the 50-point mark that separates expansion from contraction. The PMI also dashed forecasts for an increase to 49.4.
Non-manufacturing activity expanded at the slowest pace in four months in May, with the official services PMI falling to 54.5 from 56.4 in April, NBS data also showed.
The readings pushed markets in Asia lower with the yuan and Australian and New Zealand dollars tumbling and Hong Kong stocks falling sharply.
China’s economy is emerging from three years of pandemic lockdowns, but the recovery has been uneven with services spending outperforming activity in the factory, property and export-oriented sectors.
The PMIs and other economic indicators for April add to evidence that the rebound is losing steam.
Last month, imports contracted sharply, factory gate prices fell, property investment slumped, new bank loans tumbled, industrial profits plunged and factory output and retail sales both missed forecasts.
Nomura, Barclays (LON:) have both cut China’s 2023 GDP growth forecasts as the recovery sputters.
To spur credit growth, the central bank in March cut banks’ reserve requirement ratios.
Premier Li Qiang said this month more targeted measures were needed to boost demand while China’s central bank said on May 15 it would provide “strong and stable” support for the real economy.