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Investing.com-- China’s factory activity unexpectedly slipped back into contraction in July, while services activity also weakened, as weak domestic demand and disruptions from recent typhoons weighed on business activity.

The official manufacturing purchasing managers’ index (PMI) fell to 49.2 in July from 50.3 in June, missing economists’ expectations of 50.1, and marking the first contraction in since February 2026, data from the National Bureau of Statistics showed on Friday.

A reading above the 50-point mark indicates that business activity expanded from the previous month, while a reading below 50 signals contraction.

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The non-manufacturing PMI, which measures activity in the services and construction sectors, dropped to 49.0 from 50.2, below the 50.0 forecast.

The composite PMI, combining manufacturing and services, declined to 49.3 from 50.6, marking its lowest reading since China emerged from pandemic restrictions in 2022.

Capital Economics said the deterioration partly reflected disruptions from a recent spate of typhoons, which halted construction activity and weighed on services.

The official construction PMI slumped to a record low of 47.0, while wholesale, real estate and financial services were among the weakest-performing sectors, the analysts noted.

The manufacturing slowdown was driven by a sharp drop in new orders, suggesting domestic demand remained the biggest drag. By contrast, export orders eased only modestly and remained comparatively resilient.

Despite the weak headline figures, analysts said that firms appeared to expect the slowdown to be temporary, with measures of future output holding up across the manufacturing, services and construction sectors.

The softer data would increase pressure on local governments to follow through on the Politburo’s recent call to step up fiscal spending to support growth in the second half of the year, analysts added.

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