China's manufacturing sector shrank for a seventh straight month in May, as weak demand owing to the deepening Eurozone crisis and fragile global growth curtailed new orders received by Chinese firms.
Preliminary findings of a survey by Markit Economics showed Thursday the headline HSBC purchasing managers' index that measures the performance of the factory sector fell to 48.7 in May from 49.3 in April. A PMI reading below 50 suggests contraction.
New orders contracted at a faster pace in May and new export orders declined after an improvement in the previous month.
"Manufacturing activities softened again in May, reflecting the deteriorating export situation. This calls for more aggressive policy easing, as inflation continues to slow," HSBC Chief Economist Hongbin Qu said.
According to Markit, both output and input prices dropped in May, suggesting weak price pressures in the economy.
The manufacturing output index, meanwhile, returned to positive territory, rising to 50.5 from 49.3 in the previous month. The survey showed that employment at the manufacturing firms declined in May, but at a slower pace than in April.
"Beijing policymakers have been and will step up easing efforts to stabilize growth, as indicated by a slew of measures to boost liquidity, public housing and infrastructure investment and consumption," Hongbin said. "As long as the easing measures filter through, China will secure a soft landing in the coming quarters."
China on Wednesday pledged to accelerate the process of fine-tuning of its policies to achieve more stable growth. The State Council or Cabinet presided over by Premier Wen Jiabao said in a statement that China should give more priority to maintaining growth momentum and boost domestic demand.
The economy is currently facing "increasing downward pressure," the Cabinet said.
The Chinese economy expanded 8.1 percent year-on-year in the first quarter of 2012, the weakest pace in nearly three years as sluggish demand from Europe weighed on exports. Earlier this month, the People's Bank of China cut the reserve requirement ratio by 50 basis points to 20 percent for large commercial banks, to support flagging economic growth.
The World Bank said Wednesday that China's growth may ease to 8.2 percent in 2012 from 9.2 percent in 2011. Nevertheless, growth is likely to accelerate to 8.6 percent to 2013, according to the lender.
by RTT Staff Writer
For comments and feedback: firstname.lastname@example.org