China’s PMI: A tale of two sides to the economy

August 31, 2018

HONG KONG - The surprising rise in China’s manufacturing PMI in August disguises different underlying trends in production and new orders, according to a research note from ANZ Bank. The report says China’s production sub-index, which rose to 53.3 in August from 53.0 in July, was the key factor which drove the headline PMI higher.

But new orders and new export orders moderated to 52.2 and 49.4 in August respectively, from 52.3 and 49.8 in July.

“The different trends in production and new orders suggest that business sectors are still facing uncertainties down the road, especially from the external environment,” the report says.

“On a positive note, both input and output prices picked up on a y/y basis, which could lend support to PPI inflation, if they persist.

“In the manufacturing sector, input and output price indices advanced to 58.7 and 54.3 in August from 54.3 and 50.5 in July, after declining for several months.”

The report says that, although the US trade tariffs and CNY depreciation during the month may have contributed to import inflation, China’s latest policy adjustment, which aims to boost investment, may also bode well for domestic commodity prices.

“This may indicate solid PPI inflation prints for the remainder of the year, and hence a stabilisation in economic momentum in Q4.”  www.live.anz.com (ATI).