PROFITS at China’s industrial firms contracted in August, reversing the previous month’s brief gain, as weak domestic demand and the trade war with the United States weighed on corporate balance sheets.

Industrial profits fell 2 percent in August from a year earlier to 517.8 billion yuan (US$72.59 billion), data released by the National Bureau of Statistics (NBS) on Friday showed. That compared with a 2.6 percent gain in July.

Profits have slowed since the second half of 2018, despite some transitory rebounds, with falling factory-gate prices threatening to further knock profits as economic growth skidded to a near 30-year low.

As a result, policymakers are widely expected to unveil more support measures to boost a slowing economy amid sluggish consumption, rising export pressure and faltering domestic demand.

The decline in profits was in line with grim manufacturing readings in August with industrial production growth falling to its weakest in 17-1/2 years while exports also tumbled.

“Given strong growth headwinds and trade tensions, we expect the economy to worsen before getting better and believe the government will likely ramp up its policy stimulus,” analysts from Nomura said in a note.

Producer prices, one key barometer of domestic demand and indicative of profitability, posted their sharpest fall in three years last month.

For the January-August period, industrial firms earned profits of 4.02 trillion yuan, down 1.7 percent year on year, the same as the reading in the first seven months.

Earlier this month, the People’s Bank of China (PBOC) increased support for slowing growth by cutting banks’ reserve requirement ratio for the third time this year. China also cut a new one-year benchmark lending rate to free up credit to smaller firms.

Fuel processing industries, chemical fibres and paper manufacturing industries posted some of the steepest declines in profits over the January-August period.

Profit margins in car manufacturing and nonferrous sectors improved slightly and the profit declines in telecommunications and electronic equipment manufacturing, which are more vulnerable to U.S. tariffs than other product classes, narrowed.

Industrial firms’ liabilities increased 5 percent from a year earlier to 65.81 trillion yuan at end-August, compared with a 4.9 percent increase in July.

Private sector profits rose 6.5 percent in the January-August period, slowing from 7 percent growth in the first seven months.(SD-Agencies)