The January China Flash PMI is out and is virtually unchanged from at 48.8 versus 48.7 in December. To my mind the components are more encouraging with new export orders and backlogs of work reversing their declines and new orders markedly easing the pace of decline, suggesting that some rebound in demand lies ahead:
Still, it’s all a matter of perspective, current production slumped and the headline number is showing ongoing recession in Chinese industry so the markets might interpret this either way depending on their mood. Certainly the HSBC commentry was pretty dour:
The third consecutive below-50 reading of the manufacturing PMI suggested that growth is likely to moderate further, following the sharp drop of 4Q GDP to a three-year low at 8% on a q-o-q seasonally adjusted annualized basis. Despite the upside surprise of industrial production growth in December, the ongoing slowdown of investment and exports implies more headwinds to growth and likely destocking pressures for manufacturers in the coming months. We expect more policy easing to stabilise growth.
This is a better report than I expected but, as described before, I expect stimulus to be targeted and unspectacular. On that basis at least we may be looking at a more chronic slowdown in China than consensus believes. Less dip but less bounce as well. A landing neither hard nor soft, but long and uncomfortable. In fact, that would be rather consistent with the kind of balance sheet repair typical of other housing bust slowdowns. I suspect that would be unwelcome news to markets.
Full report below.
