UOB’s Ho Woei Chen notes that China’s May PMIs point to softer 2Q26 GDP growth, with manufacturing hovering at the expansion threshold and services rebounding only modestly. The economist expects China’s GDP to slow to 4.7% year-on-year in 2Q26 from 5.0% in 1Q26, keeping the full-year 2026 growth forecast at 4.7%. Policy is seen staying calibrated.

PMI signals softer but stable growth

"In sum, the latest PMIs indicate that China's manufacturing sector is holding at the expansion threshold but losing momentum, due to softer external demand and Middle East-related cost pressures."

"The services rebound offers some offset, but domestic demand remains the key vulnerability requiring policy attention."

"May PMI data reinforced the slowdown evident in Apr’s broader macro indicators."

"We expect China’s GDP growth to moderate to 4.7% y/y in 2Q26 from 5.0% y/y in 1Q26 with the full-year outlook at 4.7%."

"Unless further evidence suggests that growth could slow below the official target of 4.5%-5.0%, we think policy responses will remain calibrated and incremental."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)