China: HSBC PMI Improves But Still Suggests Subdued Growth

Published 12/15/2011, 08:05 AM
Updated 05/14/2017, 06:45 AM

HSBC manufacturing PMI improved slightly in December from 47.7 to 49.0, but still suggests that GDP growth will remain below 7% q/q AR in Q4 11. Export orders fell but remained above 50, suggesting that while China faces headwinds from weaker exports, these are less severe than in the wake of the financial meltdown in 2008.

We have lowered our GDP growth forecasts for Q4 11 and Q1 12. The Chinese leadership has signalled that fiscal and monetary policy will become more growth supportive and for that reason we have raised our GDP forecasts for Q2 12 and Q3 12. For 2012 as a whole we have lowered our growth forecast from 8.9% to 8.5%.

Details

The flash estimate for the HSBC manufacturing PMI in December improved from 47.7 to 49.0. New orders improved from 45.0 to 47.4, but remained below the 49.7 average level for Q3. The current output component improved markedly from 46.1 to 49.5 – identical to the average level for Q3. This suggests that growth in industrial production at the moment is close to growth in industrial production in Q3, which is also consistent with recent industrial production data (see chart on next page). As industrial production is the best indicator we have for GDP growth, it also suggests that GDP growth in Q4 at the current juncture appears to have been broadly unchanged compared with Q3 just below 7% q/q AR.

Export orders in December declined from 52.1 to 50.5, indicating that China faces some headwinds from weaker exports. However, at this stage, it appears that the headwinds China faces are far less severe than in the wake of the financial meltdown in late 2008, when the export component in the HSBC manufacturing PMI bottomed out at just 28.2 in November 2008. The latest trade data also shows that exports in November increased for the first time in four months as stronger exports to the rest of Asia to some degree offset weakness in exports to Europe.

Finally, the output price component remained subdued at just 43.9, suggesting that
inflationary pressure has eased substantially in China.

Assessment & outlook

Despite the slight improvement in the manufacturing PMI, our conclusion remains that
GDP growth is unlikely to have improved substantially. We still expect GDP growth to
improve in the coming quarters on the back of fiscal and monetary easing and for that
reason we also expect the manufacturing PMIs to improve gradually to around 52 by the end of Q1 12.

On the back of the data released for November and today’s manufacturing PMI, we are
lowering our GDP forecasts for China. We lower our GDP forecast for Q4 11 from 8.5%
q/q AR to 6.7% q/q AR and our forecast for Q1 12 from 9.8% q/q AR to 8.5% q/q AR.
However, because of a gradual impact from monetary and fiscal easing, we raise our GDP forecast for Q2 12 from 8.8% q/q AR to 9.6% q/q AR and for Q3 12 from 9.0% q/q AR to 10.0% q/q AR. For 2012 as a whole we lower our forecast for GDP growth from 8.9% to 8.5%.

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