China’s soft PMI calls for policy recalibration, says ANZ

HONG KONG – With China’s official manufacturing PMI, the bellwether of large industrial firms, remaining unchanged at 50.2 in June and the HSBC China flash PMI, representing a group of private-sector and small and medium enterprises, edging up from 49.2 to 49.6 in the same month, ANZ Bank says further monetary easing in China is “highly needed”.

“Real interest rates faced by Chinese corporates remain elevated, ANZ says. “We forecast that the PBoC will further lower interest rates by 25bps in Q3, and cut the reserve requirement ratio (RRR) by additional 100bps in the second half of this year, with each 50bps cut in Q3 and Q4 respectively.”
Breaking into the sub-indices, ANZ says the output index remained unchanged at 52.9, suggesting that industrial production could have stayed sluggish in June. The new order index and export order index dropped by 0.5ptand 0.7pt, to 50.1 and 48.2 respectively. In addition, the input price index dropped sharply by 2.1pts to 47.3, led by soft steel and petrochemicals prices.
Real activity indicators remained sluggish in April and May, and the electricity generation dropped again in early June, pointing to a soft print of the Q2 GDP growth. “We thus see that China’s economy could have missed 7.0% growth in Q2,” ANZ says. 
“In general, softness in the manufacturing sector remains, requiring more policy recalibration.” www.live.anz.com (ATI).