BEIJING (Reuters) – China’s factory activity likely contracted for a second month in May, a Reuters poll showed on Friday, suggesting trade tensions with major export markets are weighing on manufacturers’ minds as the world’s top two economies seek a way out of a tariff war.
A poll of 21 economists forecast the official purchasing managers’ index (PMI) will come in at 49.5 on Saturday, up from April’s 49.0, but still below the 50-point threshold that separates growth from contraction in activity.
The world’s second-largest economy is in a two-front trade war with the United States and the European Union, threatening to derail a fragile export-led recovery unless Beijing can secure a lasting truce with Washington over U.S. President Donald Trump’s tariffs and come to an agreement with Brussels on a series of dumping claims.
Trump’s decision to single China out for tariffs of 145% comes at a particularly difficult time for the $19 trillion economy, which is struggling with deflation due to sluggish income growth and a prolonged property crisis.
Meanwhile, the EU this month launched an investigation into whether anti-dumping measures are needed on imports of tyres for passenger cars and light lorries from China, alongside talks with Beijing over tariffs on Chinese-made electric vehicles.
China has hit back by looking into European brandy imports and dairy goods.
Policymakers have largely relied on exports to shore up the feeble economic recovery since the end of the pandemic and only began to take steps to boost domestic demand more earnestly late last year.
Analysts expect Beijing to deliver more monetary and fiscal stimulus over the coming months to underpin growth and insulate the economy from the tariffs.
China’s economy expanded at a faster-than-expected pace in the first quarter, and the government has maintained a growth target of around 5% this year, but analysts say U.S. tariffs could shift momentum sharply lower.
The official PMI will be released on Saturday. The private sector Caixin survey will be released on June 3. Analysts expect its reading to edge up to 50.6 from 50.4.
(Reporting by Joe Cash; Polling by Devayani Sathyan and Pranoy Krishna in Bengaluru and Jing Wang in Shanghai; Editing by Muralikumar Anantharaman)
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