Do China’s bad PMIs point to hard landing?
China’s official and final HSBC PMIs for August added to the gloom about the economy, forcing economists to cut growth estimates
The official manufacturing Purchasing Managers Index fell to 49.5 in August, in contraction territory from Julys 50.1 and the lowest in nine months.
A worse reading was shown by the HSBC final PMI figure which takes into account more small companies than the official figure which fell to 47.6 in August, down from 49.3 in July and the lowest since March 2009.
Chinas HSBC flash PMI, released a week ago, fell to a nine-month low at 47.8.
The final reading of the HSBC manufacturing PMI confirmed that Chinas manufacturing sector still faces intensifying downward pressure, Hongbin Qu, chief economist for China at HSBC, said.
In the statement accompanying the release of the data, Qu noted that new export orders contracted at the fastest pace since March 2009, stocks of finished goods had reached a record high and the employment index fell to a 41-month low.
Beijing must step up policy easing to stabilize growth and foster job market conditions, he warned.
Analysts at Danske bank said there were no signs that Chinas growth has started to recover and that the current level of manufacturing PMIs suggest that the economy could grow between 6.5 percent and 7 percent in the third quarter, broadly flat from the second quarter and below the banks forecast of 8 percent.
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Derek Halpenny, European head of global markets research at Bank of Tokyo-Mitsubishi UFJ, said that the worsening of the PMI does not help the case that the Chinese economy is turning around.
The data does reinforce our view that there will be a further rate cut in China before year-end, he said.
There is a slight glimmer of hope in the data, but this came from the six sub-indices of the official manufacturing PMI that are not part of the headline calculation, according to Wei Yao, China economist at Societe Generale.
Five of the indices continued to suggest contraction but did not deteriorate further and the input price index, rising to 46.1 from 41, indicated less deflationary pressure.
This evidence suggests that a bottom is being formed, but with painful slowness and vulnerabilities abound, Yao said.
FURTHER RATE CUTS
Because of the weak PMI report, the rest of activity for August industrial production, retail sales and exports are likely to register slower growth rates, she added.
Real GDP growth in the third quarter will almost certainly print lower than that in the second quarter, and we have revised down our forecast again to 7.5 percent year on year, Yao said.
Quinwei Wang, a China economist at Capital Economics, said the two surveys showed that the recent policy stimulus was still insufficient to offset the pressures of weakened exports and the slowdown in the real estate construction sector.
He pointed out that the slide in the official PMI was caused by worsening conditions for the big companies, which are the first beneficiaries of policy loosening.
The fact that they are still struggling does not bode well for hopes of a rapid rebound, Wang said.
The Peoples Bank of China (PBOC) cut interest rates and banks reserve requirement ratios this year to boost the economy but analysts say it still needs to do more.
With no more concrete easing moves in the past month, the authorities seem to be running a risky policy experiment to see how well the economy can hold up without any big dose of stimuli, Yao said.Although we think it is a good thing that the pain threshold of Beijing is quite high, this approach is prone to large downside risks in the short term, she added.