China’s Factories Put Dent in Global Recovery

Manufacturing activity in Asia’s top two economic powerhouses remained stuck in low gear in May, but an absence of inflation pressures suggested that authorities could inject yet more stimulus if needed.  The lackluster performance in China and Japan, along with alarmingly weak export data from South Korea and Taiwan, put the burden of supporting global growth squarely on Europe and particularly the United States, which is struggling to get back on track after a fierce winter.

China’s factory activity contracted for the third straight month in May as domestic and export orders shrank, a private survey showed, adding to views that Beijing will have to roll out its most aggressive stimulus measures since the global financial crisis to avert a sharper slowdown.  “The subdued flash PMI print suggests there is no clear sign of near-term stabilization in (China’s) economy. Risks to the outlook remain to the downside,” Barclays economist Shengzu Wang said in a research note.

The flash or preliminary HSBC/Markit Purchasing Managers’ Index (PMI) fell to 49.1 in May, weaker than an expected 49.3 and marking the fifth contraction in activity in six months.  China has already cut interest rates three times in six months and economists believe it will have to ease further as economic growth threatens to slow below the 7-percent pace seen in the first quarter.