Chinese manufacturing sector contracts in July, most in 15 months

China’s factory sector contracted by the most in 15 months in July as shrinking orders depressed output, a preliminary private survey showed on Friday, a worse-than-expected result that comes on the heels of a stock market crash which began in June.

The flash Caixin/Markit China Manufacturing Purchasing Managers’ Index (PMI) dropped to 48.2, the lowest reading since April last year and a fifth straight month below 50, the level which separates contraction from expansion.

Economists polled by Reuters had forecast a reading of 49.7, slightly stronger than June’s final reading of 49.4.

Output in July was 47.3, its lowest since March 2014. New orders and new export orders, both of which expanded in June, fell this month, according to the survey, while prices of outputs and inputs tumbled.

“Today’s PMI reading suggests that recent improvements in economic momentum may have been derailed this month by weaker foreign demand,” Julian Evans-Pritchard, China Economist for Capital Economics in Singapore, wrote in a note.

In fact, all the major survey indicators were downbeat except for employment, which was slightly stronger than in June but still showed a contraction.

“Given the survey-based nature of the PMI, it cannot be ruled out that today’s number may have been disproportionately impacted by the weakened sentiment following the equity market correction since June,” HSBC economists Qu Hongbin and Julia Wang wrote.
As reported by Reuters.

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