Despite a better-than-expected June manufacturing PMI, China’s domestic demand remains weak, according to ING. The bank expects further easing from PBOC and a second-quarter GDP slowdown to 4.6%. Trad
China's official manufacturing Purchasing Managers' Index (PMI) improved slightly in June, rising to 50.3 from 50.0, beating expectations and ING’s forecast of 50.1. However, the improvement is largely attributed to export orders rather than domestic demand, which remains a concern for policymakers.
ING's Chief Economist for Greater China, Lynn Song, highlighted that while new orders reached a three-month high at 51.2 and production edged up to 51.4, ex-factory prices fell back into contraction at 48.2, indicating potential deflationary pressures. Non-manufacturing activity also showed signs of resilience with an expansion in new orders.
Despite the positive headline PMI, ING maintains its forecast for a second-quarter GDP growth slowdown to 4.6% year-on-year due to persistent weakness in domestic demand. Retail sales and fixed-asset investment are both showing negative growth despite Beijing's efforts to pivot towards domestically driven growth models.
Weak retail and investment figures suggest that the economic rebound is being supported by external factors, such as export orders. ING expects markets will increasingly focus on July’s Politburo meeting for any potential policy easing signals but downplays the likelihood of large-scale fiscal stimulus in favor of monetary measures like PBOC rate cuts.
The broader implications are clear: while China's economic growth may see some near-term support from stronger export orders, domestic demand remains a key area of concern. Traders should watch for any shifts in policy at upcoming meetings and monitor the ex-factory price index closely as it could signal further easing measures by PBOC.
In summary, traders need to be aware that while China's economic indicators show some improvement, underlying challenges remain, particularly regarding domestic demand. The July Politburo meeting will likely provide crucial insights into future policy directions.
Source: InvestingLive. Summarized and rewritten by the Vexoda Newsroom. This is market news, not financial advice.