Chinese PMI weakens – points towards further stimulus
The Chinese HSBC/Markit flash PMI for manufacturing fell from 49.3 to 48.7, in line with our expectations of weakening confidence. This is still above the March level (48.3), and in fact confidence has continued to fluctuate at levels above the November trough (47.7) over the past 6 months. Thus, despite the weak level, at least we are not seeing further significant falls in confidence.
Of the main sub-indices, confidence was pushed down by a decline in new orders (and new export orders), while output actually rose back to above 50. However, also stocks of finished goods rose. The weakness in new orders continues to raise worries regarding the fading growth momentum.
The April data was weak, with especially industrial production surprising on the downside. Even compared to the downbeat HSBC/Markit PMI industrial production was surprisingly weak. The manufacturing PMI does not point towards a very bright May either, and we expect GDP growth to slow further in Q2.
Along with the other weak data the muted PMI paves the way for further stimulus measures, as suggested in recent comments by the authorities. Since monetary easing is already proceeding (latest cut in RRR less than two weeks ago), the next step is to ease fiscal policy. There have for instance been reports of bringing forward some infrastructure investment projects, scheduled for the end of the year. Boosting investment seems currently like the most likely option to enhance growth, and we expect growth momentum to strengthen in the second half of the year. However, no spending boom like in 2008/2009 is expected, as the authorities are likely to be satisfied with growth between 8.0-9.0%.