Chinese firms' optimism regarding future output growth falls in June

Firms plan to keep staffing levels broadly unchanged in the year ahead and raise capital expenditure (capex) and research and development spending at slower paces.

Meanwhile, companies in China indicated intentions to raise selling prices amid expectations of rising non-staff input costs.

At 11 per cent in June, the net balance of Chinese companies that expect business activity to rise over the year ahead was down from 15 per cent in February to signal a softening of overall confidence.

Furthermore, the figure was the second-lowest recorded since the initial wave of the COVID-19 pandemic in February 2020 (after October 2022). The reading was also the weakest among the economies surveyed, posting below the BRIC nations (15 per cent) and also the global average (28 per cent).

Sentiment levels slipped across both the manufacturing and service sectors, with the goods producing sector recording the lower net balance of the two at 10 per cent, down from 15 per cent in February, S&P Global said.

Companies that were upbeat that business activity will increase over the next year often attributed this to forecasts of better domestic and global market conditions.

Additionally, government policy support, business development plans and improvements in technology are also anticipated to help drive China’s output growth in the year ahead, S&P Global said in a release.

Concerns, however, exist over rising competition, geopolitical uncertainties and rising raw material and labour costs, which threaten the outlook for growth at the halfway point of the year.

A net balance of just 1 per cent of Chinese businesses in June planned to expand their staffing levels over the next 12 months in June, to suggest that overall employment will be broadly unchanged.

Companies operating in China foresee an increase in input costs over the next year. In contrast, firms downwardly adjusted their staff cost projections.

Overall, cost pressures in China are projected to remain weaker compared with other economies surveyed.

Despite expectations that charges would rise, profitability forecasts worsened in June. At minus 2 per cent, down from 6 per cent in February, Chinese companies are indicating expectations for a downturn in profitability for the first time since February 2020.

ALCHEMPro News Desk (DS)