China’s both Caixin and official manufacturing PMI was lower than consensus projections in April. The official PMI, which was released on Sunday, dropped slightly to 50.1 from March’s 50.2. Meanwhile, today’s Caixin PMI dropped to 49.4 from the previous month’s 49.7. There has been no reaction from China’s equities and currencies. The PMI figures were unexpected as the huge infrastructure investment stimuli and rebound of construction investment have lately improved confidence, noted Nordea Bank.
All vital sub-indices such as export orders, new orders and output have dropped, but there are certain positive spots that imply that the current scenario is not as dull as it appears, according to Nordea Bank.
Within the Caxin PMI, new orders index, including the finished goods inventories, have increased to the highest level since February 2011. New orders, excluding finished goods stock, usually lead output. Hence output is likely to grow in May, said Nordea Bank. Other sources also show a similar scenario. Producers in China have been exhausting the current stocks instead of making new goods in order to assist demand.
There are still concerns regarding the long-term outlook of manufacturing sector that seems to be darkened by structural changes; however, the short-term momentum has increased, noted Nordea Bank. This is quite optimistic and might assist the authorities in pushing through the supply-side reforms, particularly continued attempts in reducing overcapacity in coal and steel sectors. The Chinese economic growth is expected to continue declining; however, the huge economic stimuli are likely to avert a meltdown in 2016, said Nordea Bank.
“We expect GDP growth to be 6.5% for 2016 and 6% for 2017”, added Nodea Bank.
