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China May producer prices fall 3.7%, sharpest drop in four years

Decline underscores coronavirus pandemic's global economic consequences

Workers make silk face masks and protective suits designed by Zhou Li at a studio in Beijing on May 17.   © Reuters

BEIJING (Reuters) -- China's May factory gate prices fell by the sharpest rate in more than four years, underscoring pressure on the manufacturing sector as the COVID-19 pandemic reduces trade flows and global demand.

The pandemic has disrupted trade to China's key export markets including the United States and Europe, heaping further pressure on the outlook for manufacturing investment and jobs in the world's second-largest economy.

The producer price index (PPI) in May fell 3.7% from a year earlier, the National Bureau of Statistics (NBS) said in a statement on Wednesday, the sharpest decline since March 2016. That compared with a 3.3% drop tipped by a Reuters poll of analysts and a 3.1% fall in April.

Exports contracted in May as global coronavirus lockdowns continued to devastate demand while a deeper fall in imports pointed to mounting pressure on the key manufacturing sector.

Official and private factory surveys also indicated deep contractions in export orders.

Beijing has in recent months rolled out fiscal and monetary stimulus to prop up the economy, which contracted for the first time on record in the January-March period.

China's decision not to set a growth target for 2020 signalled Beijing's continued wariness about overly aggressive stimulus. But weak economic readings could pressure policymakers to roll out additional support measures to meet job creation and unemployment rate targets for the year.

Falling consumer inflation, however, will provide Beijing more policy space for stimulus measures to offset the impact of the coronavirus on the economy.

The consumer price index rose 2.4% from a year earlier - the weakest reading since March 2019 - compared with a 3.3% increase in April, as food prices continued to ease. Analysts had projected a 2.7% rise.

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