China HSBC Flash PMI points to tepid Q2 recovery
April 30, 2013 Category Macro-economy, Weekly
Growth in China’s factory sector dipped in April as new export orders shrank, suggesting the Chinese economy still faces formidable global headwinds into the second quarter. The flash HSBC Purchasing Managers’ Index for April fell to 50.5 from 51.6 in March but was still stronger than February’s reading of 50.4. A sub-index measuring new export orders fell to 48.6 in April from 50.5 in March, reflecting weaker global demand as the U.S. economic recovery remains fragile and the euro zone is mired in recession. The latest PMI data may overshadow China’s recovery in the second quarter after growth unexpectedly slowed to 7.7% in the first quarter from 7.9% in the previous three months. Still, the HSBC PMI has been above the 50-point level demarcating growth from contraction from the previous month since November last year, though its failure to break above 53 indicates that the economic expansion is only moderate. “New export orders contracted after a temporary rebound in March, suggesting external demand for China’s exporters remains weak,” said HSBC’s China Chief Economist Qu Hongbin. Sub-indexes measuring both input and output prices fell in April, indicating overcapacity upstream and soft demand, according to the Flash PMI survey. An employment sub-index also dipped as factory activity cooled. The latest Reuters poll showed China’s economic growth could pick up in the second quarter as the government boosts infrastructure spending. A researcher from the Ministry of Finance said that stimulus on the scale of that in 2008 was not necessary, as the economy shows an overall stable trend. China has set a 7.5% GDP growth target for this year, a level Beijing deems sufficient for job creation while providing room to deliver structural adjustment. The final HSBC manufacturing PMI is scheduled to be published on May 2, a day after the official PMI, the South China Morning Post reports.
Zhang Zhiwei, Economist at Nomura, said it is rare for China’s manufacturing to weaken in April which normally sees stronger industrial activity. Over the past seven years, the PMI in April has risen five times, fallen once and was flat once. Nomura projected that China’s economic growth has peaked in the first three months of this year at 7.7%, and will trend lower to 7.5%, 7.4% and 7.2% in the following three quarters. Xiao Chunquan, Spokesman for the Ministry of Industry and Information Technology (MIIT), warned of “great difficulties for the economy to maintain a stable growth”. He cited “a lack of effective demand, companies’ reluctance to invest, serious problems with excess capacity, and a difficult operating environment for small and micro-sized companies”. Falling profitability had curbed companies’ willingness to expand, Xiao said. Nearly 21% of the companies tracked by the government had suffered losses while those in profit were earning less than a few years ago, he said.
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