Activity in China's vast manufacturing sector may have decelerated further in June, the flash estimate of the HSBC China purchasing manager's index (PMI) is expected to show, exacerbating worries about a downturn in the world's second largest economy.
The closely-watched flash PMI survey due on Thursday could fall to as low as 48.7, according to estimates by Credit Agricole and Nomura, worse than the final reading of 49.2 in May when the index moved into contractionary territory for the first time in seven months.
A reading above 50 indicates expanding activity and one below 50 signals contraction.
"The manufacturing sector is going through a soft patch driven by the inventory cycle, where companies are holding back from growing inventories too much, that's why they haven't been producing a lot," Dariusz Kowalczyk, senior economist, Asia ex-Japan at Credit Agricole told CNBC on Wednesday, adding that June has historically logged a decline in the index.
"Consumption by households has decelerated and manufacturers are concerned about the demand outlook. For now, business sentiment will remain subdued because domestic demand isn't that strong." Kowalczyk, who expects the flash PMI to decline to 48.7, added.
Weakness in demand is reflected by the extended slump in China's producer prices, which fell 2.9 percent in May from a year earlier, steeper than a 2.6 percent decline in April. Deflation in producer prices has persisted for 15 straight months.
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