China's June factory activity quickens but exports stay weak

The purchasing managers' index (PMI) for China's manufacturing sector ticked up to 50.9 in June from 50.6 in May, the National Bureau of Statistics said Tuesday.

The production index and the new orders index reached 53.9 and 51.4, respectively, up 0.7 and 0.5 percentage points from the previous month, as supply and demand continued to pick up.

"Despite the strong recovery between March and mid-June, we believe a full economic recovery remains distant. In our view, it is too early for Beijing to reverse its easing stance", Nomura analysts wrote in a note to clients. Domestically, Chinese small firms are suffering more than larger businesses, while some industries, including textile and wood processing, are struggling to return to normal.

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High frequency Chinese data tracked by Nomura showed a flurry of better-than-expected indicators recently, including power production, property and vehicle sales, prompting the brokerage to raise its gross domestic product growth forecast for the second quarter to 2.6 per cent from 1.2 per cent.

China's manufacturing and services sectors expanded in June, beating last month's results and economists' expectations, but the coronavirus crisis still hinders economic recovery.

Data released on Tuesday also shows that another indicator of economic health, the official non-manufacturing PMI, came in at 54.4 in June, gaining 0.8 percent in one month.

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Still, construction activity, a key driver of growth, slowed from the previous month, highlighting the uneven nature of the recovery both in the sector and the overall economy.

Some analysts have warned against being overly optimistic about the outlook given uncertainties around the COVID-19 pandemic. Some fear a worldwide recession might turn out to be more pronounced than expected in the event that a second wave of coronavirus cases forces many countries to reimpose strict lockdowns. The external market is under pressure as countries are still battling with the deadly virus.

Despite stronger demand, factories reduced headcount for the second time in June since they reopened, with the survey's sub-index falling to 49.1 from 49.4 in May.

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