China’s PMIs depict mixed picture, add pressure for more monetary easing

HONG KONG - China’s official factory gauge contracted in July after expanding for four consecutive months, falling below the key 50 level separating growth from contraction and missing economist expectations. The NBS PMI came out at 49.9 in July (Consensus: 50), down from 50.2 in June. In contrast, the Caixin PMI, which tracks private sector SMEs, increased to 50.6 in July compared to 48.6 last month.

BBVA Bank says the latest outturns indicate that stimulus-led growth may have started to “lose some steam”, instigating a debate on whether the PBoC should implement more monetary easing.

“We believe that the policy stance will remain pro-growth going forward, and expect three additional RRR cuts in addition to one interest cut in the remainder of the year,” BBVA says.

“Despite persistent headwinds to growth, we don’t foresee a hard-landing this year, and so maintain our growth forecast at 6.4% for 2016 (the official target is 6.5%).” www.bbvaresearch.com (ATI).