Price pressures meanwhile also remained subdued, often linked to sluggish demand growth associated with the ongoing health measures designed to fight the pandemic as China persists with is 'zero-COVID’ policy.
Business activity surged higher across mainland China in June, according to Caixin PMI survey data compiled by S&P Global. The survey's output index covering both manufacturing and services jumped over 13 points - a gain only exceeded over the past 22 years of survey history by that seen in March 2020. The latest reading therefore signals a strong return to growth after three consecutive monthly steep declines. Barring the early months of recovery from the initial pandemic lockdowns, the latest gain was the largest recorded for over a decade.
Business activity rebounded manufacturing in June as COVID-19 containment measures were partially relaxed. Manufacturers reported the steeper rate of expansion, enjoying the second-largest increase in production since the start of 2011.
The improvements in output were principally a reflection of greater activity being facilitated by looser COVID-19 restrictions. Firms were often able to reduce their backlogs of work, which had accumulated due to the pandemic-related restrictions imposed to fight the Omicron variant. These backlogs fell notably in manufacturing.
Although the easing of COVID-19 containment measures also helped drive a return to growth of new business for the first time since December, the rebound in orders was notably less marked than the recovery of activity. This divergence hints that activity growth could weaken again in July absent a further upturn in demand growth, especially given the pull-back in indicators of backlogs of orders.
Average prices charged for goods and services were meanwhile steady in June, contrasting with marginal declines seen over the prior two months. Despite the rebound from the Omicron-related containment measures, manufacturing prices fell for a second successive month in June, the rate of inflation in fact cooling slightly from May.
The relatively subdued rebound in demand in June and the accompanying modest upward pressure on prices (and, in the case of manufacturing, falling prices) to a large extent reflect the persistence of COVID-19 containment measures. Despite some of the restrictions being eased in May and June, the overall degree of containment remains high according to S&P Global's calculations. Given the government's zero-COVID policy, restrictions also look set to remain problematic for demand growth at least until the end of the year.
ALCHEMPro News Desk (KD)
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