In June, China's official purchasing managers' index (PMI) rose to 50.3 from 50.0 in May, surpassing economists' expectations of 50.1 and indicating a return to expansion. This growth was primarily fueled by increased demand for AI technology, which helped offset the negative impacts of weak domestic demand and ongoing issues in the real estate sector.
The sub-indexes for production and new orders also improved, reaching 51.4 and 51.2, respectively. Notably, new export orders rebounded to 50.1, reflecting a recovery in overseas demand, aided by easing tensions in the Middle East. High-tech manufacturing outperformed the overall sector, with its PMI climbing to 53.5, while consumer goods production lagged at 50.2.
Julian Evans-Pritchard from Capital Economics highlighted that external demand and AI-related tech were key drivers of growth, although real estate services continued to struggle. The non-manufacturing PMI rose slightly to 50.2, but construction activity remained in contraction. The China Beige Book reported signs of recovery in manufacturing and retail sales after two months of sluggish growth.
Exports were bolstered by U.S. importers accelerating shipments following a positive meeting between President Trump and Chinese leader Xi Jinping. However, domestic challenges persist, with retail sales declining and new home prices falling faster, indicating ongoing pressure from the property downturn.
Bank of America upgraded its export growth forecast to 15% for the year, citing strong AI investment and global demand for renewable energy and electric vehicles. Despite the resilient supply, muted domestic demand may exert downward pressure on inflation in the latter half of the year.
Economists do not anticipate significant stimulus measures in the near term, although Goldman Sachs predicts that rising fiscal pressures may lead to increased government borrowing and potential easing if GDP growth disappoints