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China economy losing steam amid poor local, foreign demand

  • Published at 05:02 am May 31st, 2013
China economy losing steam amid poor local, foreign demand

China’s slowing factory sector may have barely grown in May amid lacklustre local and foreign demand, a Reuters poll showed, adding to fears that the world’s second-largest economy is losing steam.

The median forecast of 10 economists polled by Reuters showed China’s official Purchasing Managers’ Index (PMI) likely retreated to 50.1 in May from April’s 50.6 to hover a whisker above the 50-point threshold.

A reading above 50 indicates expanding activity while a reading below that level points to a contraction. The report will be released on Saturday morning.

Evidence has mounted in recent weeks that the economy is fast losing growth momentum as sluggish domestic demand fail to make up for lethargic export sales, dampening hopes for a China economic revival this year.

And there are considerable risks that the PMI could miss even conservative forecasts, especially after last week’s dismal preliminary PMI reading.

“Overall, the economy seems to be slowing so a drop below 50 in the PMI is likely,” said Zhang Zhiwei, a Nomura economist in Hong Kong who forecast the PMI would fall to 49.

“There are also seasonal factors. There is usually a big drop in the PMI in May.”

A flash private PMI survey released last week by HSBC showed China’s manufacturing sector shrank for the first time in seven months in May as new orders fell, an unexpectedly poor outcome that caused a rout in global financial markets.

The data spurred banks to downgrade their initial rosy forecasts for a 2013 China economic recovery to predict instead that annual growth could decelerate from last year, and perhaps even miss Beijing’s 7.5% target.

The IMF and OECD have also slashed their forecasts. The IMF this week cut its 2013 economic growth estimate for China to 7.75% from 8%, citing a struggling world economy and abysmal exports growth.

The OECD slashed its China 2013 economic growth forecast this week to 7.8% from a previous 8.5%, attributing its move to tepid domestic demand.