China’s manufacturing activity contracted more than expected in May, official data showed Friday, amid a bruising trade war with the United States and slowing domestic demand.

The Purchasing Managers’ Index (PMI), a gauge of factory conditions, came in at 49.4 for the month, down from 50.1 in April, according to the National Bureau of Statistics (NBS).

Marking a three-month low, the figure fell below the 50.0 mark separating expansion from contraction. Economists surveyed by Bloomberg had predicted a reading of 49.9.

Production softened while new orders fell into contraction territory, indicating “weakening market demand”, NBS analyst Zhao Qinghe said in a statement.

The new exports orders and imports sub-index shrank further from April.

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However, high-tech manufacturing kept a “relatively fast momentum for development”, Zhao added.

US President Donald Trump’s tariff hike on $200 billion in Chinese goods earlier this month “may already be undermining foreign demand,” Julian Evans-Pritchard of Capital Economics wrote in a research note.

China is retaliating by raising tariffs on $60 billion worth of US goods on Saturday.

“With a rapid escalation of US-China trade tensions, worsening employment and deteriorating growth prospects, we expect Beijing to ramp up easing/stimulus measures in coming months to stabilise growth and employment,” Nomura economists Ting Lu, Lisheng Wang and Jing Wang wrote in a research note.

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