BEIJING (Reuters) – China’s manufacturing sector contracted for a second month in June, an official factory survey showed on Sunday, keeping alive calls for further stimulus after a raft of recent indicators showed the economy struggling to recover.
The official purchasing managers’ index (PMI), which stood at 49.5 in June, was unchanged in May, below the 50 mark that separates growth from contraction and in line with a median forecast of 49.5 in a Reuters poll.
The PMI, a sentiment-based gauge, tends to paint a gloomier picture of the world’s second-largest economy than hard data. However, disappointing industrial production figures for May suggest factory owners have some reason to be worried.
While China’s exports beat forecasts in May, experts say it remains unclear whether export sales are sustainable given rising trade tensions between Beijing and Western economies. Meanwhile, a prolonged property crisis continues to weigh on domestic demand.
As consumers remained cautious and the May holiday boost faded, the non-manufacturing PMI, which includes services and construction, fell to 50.5 from 51.1 in May, the lowest since December.
Analysts expect China to roll out more policy support measures in the near term, while the government’s promise to boost fiscal stimulus would help boost domestic consumption at a faster rate.
But high local government debt and deflationary pressures cast a long shadow over recovery prospects, despite a series of measures officials have implemented since last October, tempering expectations among investors and factory owners.
Private sector investment grew by 0.1% between January and May, compared with 0.3% in the first four months alone, while the decline in real estate investment worsened.
China’s central bank last month announced an affordable housing loan program to speed up sales of unsold housing stock so that supply better matches demand.
Officials are under pressure to ignite new engines of growth to reduce the economy’s dependence on property ownership.
Premier Li Qiang told a World Economic Forum meeting on Tuesday that the growth of new industries was supporting healthy economic development.
“Since the beginning of this year, China’s economy has maintained an upward trend… and is expected to continue to improve steadily during the second quarter,” Li said.