Commenting on the HSBC China manufacturing PMI report, Capital Economics said the Chinese growth outlook appears to be improving, at least in the near term, as further policy support measures are likely in coming months.
HSBC/Markit’s manufacturing purchasing managers’ index (PMI) rebounded to 49.1 in May, according to the flash reading, up from April’s 12-month low of 48.9, the London-based economic research firm noted
Economist Julian Evans-Pritchard said the recovery was not as big as many had anticipated (both the consensus and his forecast were 49.3). That said, the uptick should go some way towards assuaging growth concerns, which have come to a head in recent weeks following a flurry of much weaker-than-expected data, he added.
Among the individual components, the output index weighed on the overall reading by sinking to a 13-month low of 48.4 from 50.0 in April. The economist said the fall was offset by rises in the remaining components, most notably employment and new orders.
Julian said the pick-up in new orders appears to be driven entirely by stronger domestic demand with the new export orders sub-component falling back sharply, hinting at weaker foreign demand. Both of the PMI’s price indices rose to a 9-month high, supporting his view that price pressures are now rebounding on the back of the recent recovery in global commodity prices.
“Overall, today’s PMI reading still points to relatively subdued economic activity. Nonetheless, the index’s first improvement since February suggests that policymakers’ efforts to shore up activity may finally be having the intended effect,” said Julian.
The economist said headwinds to growth certainly haven’t abated. The rapid trade-weighted appreciation of the Renminbi appears to be hurting external demand. Meanwhile, oversupply in the property sector and a broader structural slowdown in investment remain a drag.
That said, it is also possible to take a more upbeat view, the economist added. The PMI continues to point to stronger output in industry than what he has seen in recent months. Meanwhile, the rebound in domestic demand hinted at by the breakdown does suggest that recent policy efforts may finally be having their intended effect of shoring up short-run economic activity.