China’s factory activity seen growing steadily in May: Reuters poll By Reuters

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© Reuters. FILE PHOTO: A worker wearing a face mask works on a production line manufacturing bicycle steel rim at a factory, as the country is hit by the novel coronavirus outbreak, in Hangzhou, Zhejiang province, China March 2, 2020. China Daily via REUTERS

BEIJING (Reuters) – China’s factory activity likely maintained a steady growth momentum in May after months of expansion following a COVID-induced slump, although high raw materials costs continue to weigh on the outlook.

The official manufacturing Purchasing Manager’s Index (PMI) is expected to hit 51.1 in May, according to the median forecast of 21 economists polled by Reuters. A reading above 50 indicates an expansion in activity on a monthly basis.

That PMI reading would be unchanged from April, when China’s factory activity growth slowed as supply bottlenecks and rising costs weighed on production and overseas demand lost momentum.

“High-frequency data showed that economic activity picked up since May on a monthly basis, which is conducive for an improvement in the manufacturing activity,” said Bank of Communications in a report.

While the Chinese economy has largely shaken off the gloom from the COVID-19 health crisis, posting record growth in the first quarter, analysts expect the brisk expansion to moderate later this year.

Officials warn the foundations for the economic recovery are not yet secure amid problems like higher raw material costs and the epidemic situation overseas.

In April, earnings at China’s industrial firms grew at a slower pace, with high commodity prices and weaker performance in the consumer goods sector limiting overall profitability from manufacturing.

Prices for commodities such as coal, steel, iron ore and have surged this year, fuelled by post-lockdown recoveries in demand and easing liquidity globally.

China’s policymakers have repeatedly expressed concern about rising commodity prices in recent weeks and called for stricter management of supply and demand and to crack down on “malicious speculation.”

The official PMI, which largely focuses on big and state-owned firms, and its sister survey on the services sector, will both be released on Monday.

The private Caixin manufacturing PMI will be published on Tuesday. Analysts expect the headline reading will slip slightly to 51.7 from April’s 51.9.

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