GROWTH in China’s factory sector is expected to have slowed for a second month in July amid softer domestic investment and as the worsening trade dispute with the United States clouds the outlook for external demand.

The slowdown in July is expected to be slight, however, as healthy profit margins driven by strong commodities prices and efforts to limit excess production capacity mean firms are keen to keep their factories humming.

The official manufacturing Purchasing Managers’ Index (PMI) is expected to fall to 51.3 in July from 51.5 in June, according to the median forecast of 28 economists in a recent poll. The 50-mark divides expansion from contraction on a monthly basis.

That would mark two years of expansion for China’s manufacturing sector, following a recovery in global demand for Chinese exports and strong credit growth, which has driven a housing boom.

However, both of these drivers have slowed this year, as export growth pulls back and the government reins in credit expansion in a bid to put the economy on a more sustainable growth path.

That has raised concerns that the slowdown in growth could be steeper than expected in the second half of the year, as exports to the United States, China’s largest export market, face higher tariffs.

China’s economic growth slowed slightly to 6.7 percent in the second quarter of the year, but this was still above the official 2018 growth target of around 6.5 percent.

China is expected to boost spending on infrastructure projects over the rest of the year and ease borrowing curbs on local governments to support growth, media reports said Friday.

“This round of fiscal stimulus should be more contained compared to previous rounds given already high macro leverage and already high property prices,” said Wang Lisheng, economist at Nomura in Hong Kong.

Separately, a private survey on China’s factory expansion is forecast to hit an eight-month low in July, though the slowdown is expected to be mild.

The private Caixin/Markit Manufacturing Purchasing Managers’ Index is expected to have fallen to 50.8 in July versus 51.0 in June.

The official PMI survey is due out tomorrow, along with a similar official survey on services.

The private Caixin manufacturing PMI will be published Wednesday, and the Caixin services PMI on Friday.(SD-Agencies)