Via Capital Economics:
• The latest survey data, while not as bad as some feared, still paint a fairly downbeat picture. We expect the economy to weaken further in the coming months, triggering additional policy easing.
• After slumping from 50.6 to 50.0 in September, the Caixin manufacturing PMI edged back up to 50.1 in October. This was slightly stronger than anticipated (the Bloomberg median was 50.0, our forecast was 49.8) but still points toward slower growth on the China Activity Proxy, our in-house measure of GDP growth. (See Chart 1.) The sharp fall last month in the official manufacturing PMI is also consistent with weakening momentum. (See yesterday’s Data Response.)
• The breakdown of the Caixin index shows an improvement in the employment and new orders components but a further decline in the output component. (See Chart 2.) The export orders index rebounded slightly, perhaps reflecting a step up in front-loading by US importers ahead of the higher tariff rate that is due to come into force on many goods in January. But taken at face value, the export orders component still points to much weaker export growth than the hard data have so far shown. (See Chart 3.)
• The PMI price indices point to a faster rise in input costs for firms, most likely due to the lagged impact of higher oil prices. However, output prices have remained more tepid, reflecting weakening domestic demand. (See Chart 4.)
• Overall, the PMIs for October suggest that growth remained on a downward trajectory at the start of Q4, with more weakness likely in the coming months. The readout from yesterday’s Politburo meeting, which flagged the need for more pre-emptive policy, leaves little doubt that officials will respond to this downward pressure with additional stimulus measures. However, we don’t think this will succeed in putting a floor beneath growth until the middle of next year.