Strong Chinese manufacturing PMI poses upside risk to Q2 GDP, says ANZ Research

China’s Purchasing Managers’ Index (PMI) posted solid gains for the month of August following a rebound in new orders and as the effects of unfavorable weather conditions in previous months faded away.

The product and new orders sub-indices moved higher to 54.1 and 53.1 respectively in August from 53.5 and 52.8 in July. Business expectations also rose to a six-month high of 59.5. In addition, activity in the steel industry also rose, with the industry’s PMI, which is compiled by a third party, surging to a record high of 57.2 in August, reflecting robust business sentiment.

Input prices continued to rise, foretelling sequential increases in the producer price index for August. Manufacturing purchasing prices rose to 65.3 in August from 57.9 prior, and input prices for non-manufacturing prices rose to 54.4 from 53.1 prior, reinforcing the view that deflationary risks in China have dissipated.

"We expect the producer price index (PPI) inflation to rise in August sequentially (range: 0.1-0.3 percent m/m) when the data is released next week," ANZ Research commented in its latest report.

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