China factory growth hits eight-month high, well above forecasts
Some analysts see headwinds weighing on growth in second half
An official Chinese gauge of manufacturing activity hit an eight-month high in May, well exceeding analyst estimates amid fears that an economic slowdown may be in the cards.
The manufacturing purchasing managers’ index, released by the National Bureau of Statistics, came in at 51.9, up from 51.4 in April, and comfortably above the 50.0 number that divides contraction and growth. Analysts polled by Reuters expected a dip in the number to 51.3.
The better-than-expected number was boosted by an increase in domestic and overseas demand, with new export orders and imports both strengthening.
Analysts were encouraged by the data, but cast doubt on its sustainability.
“Today’s strong set of official PMIs tell a reassuring story about current growth momentum,” London-based research firm Capital Economics was quoted by Caixin as writing in a note. The firm added that the Chinese economic recovery starting in April may have extended into May.
Bloomberg, meanwhile, reported that “China’s factory boom doesn’t look sustainable.”
“’We’re going to see strong headwinds in the second half of this year,’ Lu [Ting, Nomura chief China economist] said, adding that such a scenario will likely spur policymakers to increase support for growth.” […]
“Li Wei, a senior economist at Standard Chartered Plc in Shanghai, also expects that the factory resurgence is poised for a reversal. ‘Weakening demand will gradually feed through to factory production,’ he said.”
Caixin will release another reading of May’s manufacturing activity with its own PMI survey, set to be released on Friday.
The wildcard in economic forecasts is the US administration’s renewed threat of tariffs on Chinese products, which likely hinges on the outcome of trade negotiations set to continue when US officials arrive in Beijing this weekend. Beijing has pledged to respond in kind should the tariffs go into effect.