China's PMI to show gradual factory recovery from lockdown paralysis: Reuters poll

BEIJING (Reuters) - China’s factory activity likely rose for a third straight month in May as the economy recovered from strict lockdowns implemented to contain the coronavirus outbreak, which has hammered global business activity.

FILE PHOTO: Employees work on a production line inside a Dongfeng Honda factory after lockdown measures in Wuhan, the capital of Hubei province and China's epicentre of the novel coronavirus disease (COVID-19) outbreak, were further eased, April 8, 2020. REUTERS/Aly Song

The official manufacturing Purchasing Manager’s Index (PMI), due for release on Sunday, is forecast to rise to 51.0 in May, from 50.8 in April, according to the median forecast of 23 economists polled by Reuters. A reading above 50 indicates an expansion in activity.

Recent PMIs in many other economies have plummeted to previously unimaginable lows.

The Chinese government earlier this month omitted a gross domestic product (GDP) growth target for 2020 in its yearly work report, citing uncertainties brought on by the epidemic. Hobbled by the coronavirus, China’s economy shrank 6.8% in the March quarter from a year earlier, the first contraction since current quarterly records began.

The government also announced a range of fiscal measures to bolster the economy and support jobs, equal to about 4.1% of China’s GDP, according to Reuters calculations.

China’s factory output rose for the first time this year in April as the economy slowly emerged from its coronavirus lockdown, although consumption remained depressed amid increased job losses.

While much of the economy has reopened, many manufacturers are struggling with reduced or cancelled overseas orders as global demand falters. China’s factory prices fell at the sharpest rate in four years in April, as industrial demand weakened.

Also, while China has defied a deeper slump in exports seen across Asia in April, that trend is unlikely to last, said Sian Fenner of Oxford Economics.

“[W]e expect this to be temporary as global supply disruptions and a contraction in external demand will continue to weigh on all Asian economies in the near-term,” Fenner wrote in a note.

Chinese authorities have rolled out more support to revive the economy, and earlier this month targeted a 2020 budget deficit of at least 3.6% of GDP, above last year’s 2.8%.

The People’s Bank of China has cut the amount of cash banks must hold as reserves and reduced the interest rate on lenders’ excess reserves, as well as guiding benchmark lending rates lower to reduce borrowing costs for companies and prop up the economy.

The private-sector Caixin/Markit Manufacturing PMI, which analysts say focuses more on smaller export-driven firms, is expected to improve slightly in May but remain in contractionary territory, rising to 49.6 from the previous month’s 49.4. That PMI is released on Monday.

Reporting by Gabriel Crossley; Editing by Sam Holmes