China’s industrial activity has shrunk more than expected in June, shedding light on the need for more economic stimulus on the background of higher US tariffs and weaker domestic demand, which increase the pressure on new orders.

The Purchasing Managers’ Index (PMI) in the industrial sector reached 49.4 points in June, according to the data of the Chinese National Statistics Bureau. The figures are unchanged from the previous month, remaining below the 50-point limit, which divides the contraction from growth. Analysts expected a reading of 49.5 points.

The poor data on the industry is expected to shadow the progress made between Beijing and Washington at their G-20 summit in Japan on the resumption of negotiations between them.

They will also reawaken worries about stagnant Chinese growth and the risk of a global recession, despite the slightly better-than-expected export data and industrial gains in May.

Many economists still expect the economy to face a strong counter-wind in the coming months amid weak domestic demand and rising external risks.

“Although the outcome of the G20 summit can boost confidence in some parts, organic growth in the economy is still insufficient and counter-cyclical incentive policies need to be maintained”, said the researchers from Huatai Securities in a note to their customers.

The production in China slowed in June, with the sub-index falling to 51.3 points from 51.7 in May. At the same time, the decrease in new sales accelerated to 49.6 points from 49.8 points a month earlier.

Export orders also increased their decline, with the subindex falling to 46.3 points from 46.5 points in May, which suggests a continuing weakening of global demand in May.

A similar trend was seen in the non-industry orders index, which reached its lowest level in six months in June – 54.2 points from 54.3 points a month earlier. This is below market expectations of 54.5 points.