Chinese PMI contracts for second month

China , PMI Feb 03, 2015 No Comments

Chinese PMI contracts for second monthThe final HSBC/Markit Purchasing Managers’ Index (PMI) for January came in at 49.7 on a seasonally adjusted basis, just below the 50.0 level that separates growth from contraction. The number was slightly lower than a preliminary “flash” reading of 49.8 but higher than the final 49.6 in December.

The dour data mirrored two official reports released by the government on Sunday which showed weakness in China‘s manufacturing and services sectors last month. Hurt by a sagging property market, unsteady exports and cooling domestic demand and investment, analysts expect China’s economic growth may slow to 7 percent this year.

Activity in China‘s factory sector shrank for the second straight month in January as the new year got off to a rocky start for the world’s second-largest economy. “Chinese manufacturers saw a fractional deterioration in operating conditions at the start of 2015. Although output rose slightly and new orders broadly stabilized, staffing levels were cut for the fifteenth successive month,” analysts at HSBC said.

China‘s economic growth slowed to 7.4% in 2014, the slowest rate in more than 20 years. While still impressive by global standards, most experts think it would slip further this year. “This is all part of the continual slowdown of the economy,” said Larry Hu, an economist at Macquarie. The employment subindex of both PMIs indicated job-shedding continued in January, a particular concern for China’s government.

The weak readings “show that demand from the corporate sector is still sluggish,” said Ma Xiaoping, an economist at HSBC , adding that previous government-support measures—including liquidity injections, an interest-rate cut and revised lending rules—had so far shown only a limited effect.

Analysts said the data for the official purchasing managers’ indexes, released by the National Bureau of Statistics on Sunday, suggested that the government would need to consider rolling out more targeted measures to boost the economy in the coming months.

After 30 years of double-digit growth, China has taken on the task of steering the country on a more sustainable growth path. Its leaders have stated that under 8 per cent growth rates are now the “new normal” and the growth target for this year is expected to be lowered to 7 per cent.

Chinese Premier Li Keqiang reassured a floor of global chief executive officers at the World Economic Forum in Davos, Switzerland last month that no regional or systemic financial crises would occur and that China would avoid a hard landing. Nonetheless, the latest data suggests that the downturn might be deeper than expected as all major sub-indexes fell last month, including new orders and new export orders. The sub-index of raw material purchasing. prices decreased to 41.9.

“Investors have turned more pessimistic on China’s economic outlook with the latest PMI,” said Stella Lee, Hong Kong-based president of Success Wealth Management Ltd. “The People’s Bank of China is facing pressure to weaken the fixing further as it’s unlikely to widen the trading band given the economic slowdown. The yuan is likely to trade weaker in the first half of 2015.”

Some economists said the January reading was especially downbeat as it suggested that factories did not enjoy a usual spike in business before China‘s annual Spring Festival holiday, which falls in mid-February this year. The poor January official PMI fueled bets that more monetary policy loosening was in store in the world’s second-largest economy. Analysts expect growth to fall below 7 per cent this year as the world’s second-largest economy struggles with ongoing deep-rooted structural challenges, including local government debt, the property market correction and deleveraging.

Pascal Blanc

Pascal has implemented numerous software solutions in the areas of procurement, sourcing, spend management, supplier evaluation and performance. His clients include Fortune 500 companies in Europe, Asia and North America. He is a co-founder of Source & Procure.

Leave a Reply

Your email address will not be published. Required fields are marked *