China’s manufacturing sector showed signs of recovery yesterday as an HSBC survey provided fresh evidence that the worst may be over for the world’s No. 2 economy.
The preliminary purchasing mangers’ index (PMI) released by the British banking giant hit 49.1 this month, the highest level in three months and up from 47.9 last month. A reading above 50 indicates growth.
While the figure marks the 12th straight month of contraction, it is also the second consecutive monthly improvement and adds to recent indications China’s economy is on the mend after a slowdown that began early last year.
The index, compiled by information services provider Markit and released by HSBC, tracks manufacturing activity and is a closely watched barometer of the health of the economy.
China’s official PMI figure was 49.8 for last month, a second straight contraction. This month’s official figures are expected on Thursday next week, the same day HSBC will release its final result.
HSBC economists Sun Junwei (孫君瑋) and Qu Hongbin (屈宏斌) said in a report that this month’s reading came as total new orders picked up to a six-month high, while new export orders had their best showing in five months.
They also said the PMI result “reflected the filtering through of earlier easing measures” introduced by policymakers this year to boost growth.
Those measures include two interest rate cuts in quick succession as well as the loosening of restrictions on how much money banks must keep on hand in an effort to boost lending.
China last week said the economy grew 7.4 percent in the three months until last month, slowing for the seventh straight three-month period and its worst performance since the first quarter of 2009.
Improvements last month for exports, industrial production and retail sales spurred optimism that the worst may be over for the Asian giant, although Sun and Qu warned that problems in overseas economies and China’s job market continued to weigh.
“Growth has likely bottomed out and is headed for a gradual recovery into 4Q” they said, referring to the current final quarter of this year until December.
“With inflation still under control and downside risks to growth lingering, China should continue with its current easing efforts to secure a firmer growth recovery,” they wrote.
China’s consumer price index slowed last month, rising 1.9 percent year-on-year, slightly down from the 2 percent recorded in August. Inflation plagued China’s economy in much of 2010 and last year, with CPI peaking in July last year at 6.5 percent.
Zhang Zhiwei (張智威), economist at Nomura International in Hong Kong, agreed that the economy is on the mend.
“Leading indexes all point to rising growth momentum,” he said in a written commentary after the initial PMI announcement by HSBC.
Zhang said he expects China’s official PMI figure to rise to 50.2 for this month and the economy to accelerate to 8.4 percent year-on-year growth in the fourth quarter.