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China's manufacturing activity shrinks as US tariffs slowing down Reuters orders



© Reuters. Chinese manufacturing activity has shrunk more than expected in June, according to an official production survey, which highlights the need for more economic incentives, as US tariffs and weaker domestic demand have increased pressure on new commodities.

The Purchasing Managers' Index (PMI) rose to 49.4 in June, China National Statistics Bureau reported on Sunday, unchanged from the previous month and below 50 marks, which cuts growth from a contraction on a monthly basis. Analysts surveyed by Reuters predicted a reading of 49.5.

Weak manufacturing performance is likely to shadow the apparent progress made by the US and Chinese leaders at the G20 summit in Japan over the weekend to resume troubled negotiations over the cost of a costly trade war.

They will also raise concerns about China's slowdown in growth and the risk of global recession, despite slightly better-than-expected export data and industrial gains in May.

While the outcome of the G20 summit (in Osaka) may enhance the confidence of some subjects, organic growth in the economy is still insufficient and counter-cyclical stimulus policies

Many economists still expect the economy to grow [shouldberetained"researchersfromHuataiSecuritieswroteinaresearchnoteSunday

"The PMI index continued to fall throughout this month, and only the sub-industrial inventory index grew due to weak demand," the study said.

China's production growth slowed down in June, with sub-indices falling 51

.3 from 51.7 in May, while the contraction in total new orders accelerated to 49.6 from 49.8

Export orders prolonged their decline with a fall in the sub-index to 46.3 from 46.5 May, suggesting further weakening world demand

Import orders also worsened, reflecting Softening Home Demand Despite Sturdy Development

Southwest Securities said weak new export orders reflected the dampening of the frontloading effect, which temporarily increased exports as Chinese companies rushed to make orders before they came into force

Presidents Donald Trump and Ce Jingping have held talks on breaking the ice at the G20 summit on Saturday. China's state media, however, warned on Sunday that Beijing and Washington are likely to face a long way before the two sides can reach an agreement

Nomura analysts expect some profits from a temporary trade deal between China and the United States to be short-lived. Trump has already imposed $ 250 billion in Chinese commodity tariffs and threatened to extend those $ 300 billion that will effectively cover all Chinese exports to the United States. China responds with US import tariffs

In order to cope with the economic challenges, politicians have launched a number of measures and are expected to start another. Prime Minister Li Keqiang promised last week to cut real interest rates for financing small and micro businesses.

Goldman Sachs (NYSE) said the lack of significant progress in the G20's Sino-US G20 trade negotiations over the weekend offered an impetus

"We expect a greater policy easing (two more cuts in reserve holdings in 2H year, more fiscal measures to support infrastructure investments) that will come in the next few months, "says Goldman Sachs in a note.

Producers continued to cut jobs in June, with the employment index dropping to 46.9, compared with 47.0 in May when it reached the lowest level since March 2009.

A formal business survey showed that activity in the Chinese services sector is stable in June, despite the growing pressure on the wider economy from US trade measures, with an official reading of 54.2 in June from 54.3 in May.

Beijing relies on a strong service sector to take a standstill when it tries to shift the economy away from dependence on heavy industry and manufacturing exports.


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