In September, China’s official manufacturing Purchasing Managers’ Index (PMI) increased slightly to 49.8, up from 49.1 in August. This improvement signals a recovery in production activity driven by better new orders, although the average PMI reading for the third quarter remained subdued at 49.4, staying below the critical threshold of 50 for the sixth consecutive quarter. This trend suggests a general softening in economic activity, particularly in the industrial sector, where seasonal effects may have influenced production levels following disruptions caused by adverse weather.
The weakening of domestic demand has become increasingly evident. The services PMI fell to 49.9, dipping below the neutral mark of 50 for the first time since late 2023, reflecting stagnation in that sector. The average for the services PMI during the third quarter was reported at 50, indicating a flat performance amidst ongoing deflationary pressures. Notably, consumer price index (CPI) inflation appears to have moderated in September, largely due to a slowdown in food price growth, as well as decreases in service and fuel costs. Additionally, producer price index (PPI) deflation has deepened, reaching a year-on-year decline of 2.5% in September—the most significant contraction in five months.
Despite these challenges, net exports likely remained a positive contributor to growth, partly alleviating the economic strain caused by issues in the housing market. Real GDP growth for the third quarter is projected to be below 1%, prompting a downgrade in GDP growth forecasts for that period to 4.4% year-on-year, down from an earlier estimate of 4.9%. Conversely, the outlook for the fourth quarter has been upgraded to 4.8% year-on-year, reflecting new policy measures aimed at stimulating economic activity. Recent meetings among policymakers indicated a shift towards a more supportive growth stance, with indications that the central bank may consider implementing more accommodating monetary policies. The government is also expected to pursue additional bond issuance to fulfill fiscal spending and address housing market challenges.
