China factory and services activity slows in April – PMI

The latest data from China indicates a slowdown in growth across both the manufacturing and services sectors in April, signaling a loss of momentum for the world’s second-largest economy at the beginning of the second quarter.
While solid first-quarter GDP figures have somewhat eased the pressure to implement additional stimulus measures, the signs of cooling activity underscore the challenges facing policymakers.

China’s manufacturing purchasing managers’ index (PMI) dropped to 50.4 in April from 50.8 in March, slightly above expectations but still indicating growth, while the Services PMI fell to 51.2 in April from 53.0 in March, significantly below forecasts.

The private Caixin factory survey, which focuses more on smaller, export-oriented firms, showed faster manufacturing activity growth, driven by an increase in new export orders.

In response to the economic slowdown, China has announced plans to enhance support for the economy, utilizing tools such as adjustments to banks’ reserve requirement ratios (RRR) and interest rates.
However, the global economic landscape, with central banks like the US Federal Reserve showing reluctance to cut interest rates, may prolong tepid external demand for Chinese goods.

China’s immediate concerns revolve around a protracted property downturn and mounting local government debt, which have impacted household and investor confidence. Despite several rounds of support measures aimed at revitalizing the real estate sector, indicators like new home sales and construction continue to contract sharply.

While the stronger-than-expected first-quarter growth provided optimism, weaknesses in March’s data, including retail sales, industrial profits, and property investment, have raised concerns about China’s ability to sustain a broader economic recovery.

China has set a GDP growth target of around 5.0% for 2024, which analysts view as ambitious without additional stimulus measures.
While a cyclical recovery is expected to persist in the short term, supported by fiscal measures, there are significant downside risks, including trade barriers, a deeper property construction downturn, and reduced local government spending on infrastructure.