China’s Factory Outlook Eases as Economic Recovery Moderates
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A gauge of China’s manufacturing industry slipped in April and the services sector also weakened, suggesting the economy is still recovering but at a slower pace.
- The official manufacturing purchasing managers’ index fell to 51.1 in April from 51.9 in the previous month, the National Bureau of Statistics said Friday, lower than the median estimate of 51.8 in a Bloomberg survey of economists.
- The non-manufacturing gauge, which measures activity in the construction and services sectors, dropped to 54.9, compared to 56.1 projected by economists. Readings above 50 indicate an expansion in output.
The latest data adds more caution to China’s outlook after the economy showed more balanced growth in the first quarter, as retail sales climbed and industrial output growth moderated.
The PMI figures show “China’s economy continued to recover steadily,” Zhao Qinghe, an economist at the statistics bureau, said in a statement accompanying the data release. But “some surveyed companies said problems such as chip shortages, poor international logistics, shortages of containers, and rising freight rates are still serious,” he said. A slowdown in manufacturing supply and demand and rising cost pressures are also issues, he said.
What Bloomberg’s Economists Say...
Both manufacturing and non-manufacturing sectors remained comfortably in expansionary territory, confirming that the recovery is well underway. The non-manufacturing PMI again outpaced manufacturing, supporting our view of the services sector catching up and manufacturing activity peaking.
-- Chang Shu, chief Asia economist
See the full note here
Manufacturers, especially those in upstream sectors, are benefiting from rising prices and profits, while the U.S. fiscal stimulus is giving a boost to exporters, allowing them to increase production. However, measures to contain carbon emissions in heavy-polluting industries may be weighing on some manufacturing output.
Stronger consumer confidence is boosting services industries, especially after travel restrictions imposed earlier in the year were lifted. The outlook for construction is more complicated though, with local governments slowing the pace of debt sales to finance infrastructure projects and approvals for fixed-asset projects dropping sharply in the first quarter compared with previous years. The real estate sector is also faced with stricter financing rules. The construction sub-index in the non-manufacturing PMI fell 4.9 points to 57.4.
The “services PMI slowed more than manufacturing PMI due to deleveraging reform in the real estate sector, and this will continue,” said Iris Pang, chief economist for Greater China at ING Bank NV in Hong Kong. But there should be a rebound as domestic tourism picks up over the long holiday starting May 1, she said.
Other key details:
- A sub-index of new export orders for factories eased to 50.4 in April from 51.2 in the previous month, while new orders were at 52.
- A sub-index of manufacturing employment was at 49.6, while non-manufacturing employment was 48.7.
- Indexes tracking large and medium companies both fell in the month, while that of small firms rose 0.4 percentage points to 50.8.
High-frequency indicators tracked by Bloomberg show the economy continued to boom in April from the record growth in the first quarter, with strong exports and rising business confidence supporting the recovery.
In a separate report Friday, the Caixin Manufacturing Purchasing Managers’ Index -- a private gauge of China’s manufacturing activities that tracks smaller companies than the official PMI -- rose to the highest level this year. The increase was supported by significant expansion in both manufacturing demand and supply, as “manufacturers stayed confident about the economic recovery and keeping Covid-19 under control,” according to a statement by Caixin and IHS Markit.
“Details of both official and Caixin surveys pointed to continued improvement in smaller enterprises while the large and medium enterprises’ growth moderated,” said Liu Peiqian, an economist at Natwest Group Plc, adding that the chip shortage may have temporarily impaired the pace of growth but the recovery trend is intact.
The data suggests the central bank’s tapering of its stimulus “should only happen in a gradual way and the targeted easing for corporates are still necessary to support further growth,” Liu said. “We expect the People’s Bank of China to keep benchmark rates unchanged throughout 2021 while focusing on gradually guiding credit growth lower.”
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