1 Dec 2014
China's PMI suggests further easing needed - ANZ
FXStreet (Bali) - Li-Gang Liu, Chief Economist, Greater China and Hao Zhou, China Economist, from ANZ, note that following today's Chinese official PMI, in order to maintain the whole year growth at around 7.5%, Chinese authorities will intensify easing efforts in December to accelerate growth.
Key Quotes
"China’s official PMI, the bellwether of large industrial firms, declined further to 50.3 in November, pointing to a weak growth momentum. In the meantime, the HSBC flash PMI, representing a group of private-sector and small and medium enterprises, edged down by 0.4pts to 50.0 in November."
"The decline of official PMI is across the board. The output sub-index dropped by 0.6pts to 52.5pts, and the new order sub-index fell by 0.7pts to 50.9pts, pointing to a weak industrial production growth in November. The steel mills in Hebei province were forced to shut down during the APEC submit, which should have dragged down the production growth. The export order sub-index also dropped sharply by 1.5pts, suggesting that exports are unlikely to maintain a double-digit growth in November. Meanwhile, input price sub-index fell to the lowest level since March, indicating that the PPI inflation could trend lower."
"The PBoC’s rate cut appears to fail to improve the sentiment, and we see little improvement in activity indicators in November. The crude steel output registered a slowest growth since 2013, and the electricity generation remained negative in early November according to high-frequency data. We believe that the sluggish activity data could have triggered the rate cut. If the downward trend in the manufacturing sector continues, China’s Q4 growth is unlikely to reach 7.5%."
"In order to maintain the whole year growth at around 7.5%, we believe that Chinese authorities will intensify easing efforts in December to accelerate growth momentum. On the monetary policy front, we see that the central bank is likely to add more liquidity into the market and to encourage commercial banks to extend more credits to the real economy. In addition, seasonal pattern suggests that China’s fiscal spending usually surges at the end of the year, which will not only improve the inter-bank market liquidity conditions, but also somewhat lift up the demand for manufacturing goods."
Key Quotes
"China’s official PMI, the bellwether of large industrial firms, declined further to 50.3 in November, pointing to a weak growth momentum. In the meantime, the HSBC flash PMI, representing a group of private-sector and small and medium enterprises, edged down by 0.4pts to 50.0 in November."
"The decline of official PMI is across the board. The output sub-index dropped by 0.6pts to 52.5pts, and the new order sub-index fell by 0.7pts to 50.9pts, pointing to a weak industrial production growth in November. The steel mills in Hebei province were forced to shut down during the APEC submit, which should have dragged down the production growth. The export order sub-index also dropped sharply by 1.5pts, suggesting that exports are unlikely to maintain a double-digit growth in November. Meanwhile, input price sub-index fell to the lowest level since March, indicating that the PPI inflation could trend lower."
"The PBoC’s rate cut appears to fail to improve the sentiment, and we see little improvement in activity indicators in November. The crude steel output registered a slowest growth since 2013, and the electricity generation remained negative in early November according to high-frequency data. We believe that the sluggish activity data could have triggered the rate cut. If the downward trend in the manufacturing sector continues, China’s Q4 growth is unlikely to reach 7.5%."
"In order to maintain the whole year growth at around 7.5%, we believe that Chinese authorities will intensify easing efforts in December to accelerate growth momentum. On the monetary policy front, we see that the central bank is likely to add more liquidity into the market and to encourage commercial banks to extend more credits to the real economy. In addition, seasonal pattern suggests that China’s fiscal spending usually surges at the end of the year, which will not only improve the inter-bank market liquidity conditions, but also somewhat lift up the demand for manufacturing goods."