A survey on Sunday showed that Chinese factory activity, after rebounding from the coronavirus lockdown last month, contracted unexpectedly in July as new virus outbreaks and a gloomy global outlook dampened demand.

China’s National Bureau of Statistics said the official manufacturing purchasing managers’ index (PMI) fell to 49.0 in July from 50.2 in June, below the watershed of 50.

Analysts surveyed by Reuters had expected the index to improve to 50.4.

“China’s economic prosperity level has declined, and the foundation for recovery still needs to be consolidated,” said Zhao Qinghe, a senior statistician at China’s National Bureau of Statistics, in a post on the bureau’s website.

He said the continued contraction in the oil, coal and metal smelting sectors was one of the main factors pulling down manufacturing PMI in July.

The index was the lowest in three months, with output, new orders and employment sub-indices all contracting.

Chinese manufacturers continue to be squeezed by high raw material prices, which are compressing profit margins, while fears of a global recession still hang over the export outlook.

Bruce Pang, chief economist and director of research at Jones Lang Lasalle, said that weak demand had dampened the recovery. “With a slow and fragile recovery, growth in the third quarter is likely to face greater challenges than expected,” he said in a research note.

The official non-manufacturing PMI fell to 53.8 in July from 54.7 in June. The official composite PMI, which includes manufacturing and services, fell to 52.5 from 54.1.

China’s economy grew little in the second quarter during the widespread lockdown, and top leaders recently said their strict zero-clearing policy would remain a top priority.

Chinese state media reported after a high-level meeting of the Communist Party that policymakers were prepared to fail to meet the target of “about 5.5 percent” GDP growth this year.

Beijing’s decision not to mention growth targets has dispelled speculation that authorities will roll out massive stimulus measures, as they have often done in previous recessions.

Capital Economics said policy restraint, combined with the ongoing threat of more lockdowns and weak consumer confidence, could make China’s economic recovery even longer.###

— VOA report