China: Business Sentiment worsened in July – UOB

Economist at UOB Group Ho Woei Chen, CFA, reviews the latest set of data results in the Chinese economy.

Key Takeaways

“China’s official manufacturing PMI unexpectedly slumped to 49.0 in Jul (Bloomberg est: 50.3; Jun: 50.2), highlighting the fragility of China’s recovery. The Caixin manufacturing PMI also eased by a larger than expected pace to 50.4 (Bloomberg est: 51.5; Jun: 51.7) but stayed in expansion.”

“The non-manufacturing PMI eased to 53.8 in Jul (Bloomberg est: 53.9; Jun: 54.7) but remained in expansion for the second straight month as strengthening construction (59.2 from 56.6 in Jun) led by local government frontloading infrastructure spending which offset weaker services activity index (52.8 from 54.3 in Jun).”

“The resurgence in COVID infections (in cities including Shenzhen), turmoil in the domestic property market, high global inflation and weakening global demand outlook are all dampening China’s recovery in 2H22.”

“This suggests increasing downside risk to our 4.1% GDP growth forecast for China this year, which assumes 5.3% growth in 2H22 (from 2.5% y/y in 1H22).”