Daily Management Review

Reuters Poll Indicates China September Official Factory PMI Shrinking for Second Month


09/28/2015




Reuters Poll Indicates China September Official Factory PMI Shrinking for Second Month
A poll conducted on 29 economists by news agency Reuters claimed that the official manufacturing Purchasing Managers' Index (PMI) of China for September is forecast to inch down to 49.6 from August's 49.7, according to the median forecast of the analysts.

This, the likely consecutive second reduction in PMI in China could compound the fears of a sharper slowdown in the world's second-largest economy.

According to global economic theories, a PMI reading above 50 indicates an expansion in activity while one below that signifies a contraction on a monthly basis.

The contraction in factory activity in China in August was the steepest in three years and if the poll results were to turn true then the projected September number of 49.6 would be the lowest since August 2012.

A weak PMI would mean that the possibility of Chinese authorities rolling out more support this year for the industry was bright which could include further cuts in interest rates, bank reserve requirements and higher infrastructure spending.

"Conditions remain weak in China's economy but a sharper downturn would be unlikely thanks to government supportive policies," said Hu Yuexiao, economist at Shanghai Securities in Shanghai.

Another survey by a private agency last week had indicated that the decline in demand in the Chinese market would drag the country’s factory sector into its sharpest contraction in 6-1/2 years. These figures and analysis could also result in global fear about a faster slowdown of the Chinese economy than earlier predicted.

A four year low of 46.0 in September was noted for new orders - an indicator for both domestic and overseas demand – compared to 46.6 in August. Highlighting decreasing global demand, China’s export orders also contracted at the fastest clip since mid-2013.

Since the last few months fear among the global investors and policy makers are growing about China’s growth scenario and some even fear that in the present year the second largest economy of the world could log its weakest performance in at least a quarter of a century.

Doubts inside and outside China over Beijing's ability to manage its economy were sharply raised after China’s successive devaluation of its currency – yuan, and the steep plunge in China's stock market over the summer.

Recent economic data suggested China's economy lost further momentum over the summer, despite the Chinese central bank slashing interest rates five times since November and the government announcing several stimulus packages for the industry.

On October 1, China would release the official PMI factory numbers along with the official services PMI and the Caixin/Markit manufacturing PMI (final) and its services PMI.
 
The declining projected PMI increases the chances of the Chinese economic growth for the third-quarter dipping below 7% for the first time since the global crisis even as a section of the economists believe that the actual current growth is much weaker than the rates and figures that are announced by the Chinese government.
 
"The PMI's new leg down is consistent with a further deceleration in Chinese growth through year-end 2015," said economist Bill Adams at PNC Financial Services.
 
"PNC forecasts roughly 6.5% growth in the third and fourth quarters of 2015 (in year-ago terms) and 6.2% in all of 2016," he added.
 
 (Source:www.reuters.com & www.business-standard.com) 






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