Manufacturing activity in Asia’s top two economic powerhouses slowed further this month, a disappointing outcome that calls for yet more stimulus and puts pressure on the US and Europe to do more of the heavy lifting to drive global growth.
The flash HSBC/Markit Purchasing Managers’ Index (PMI) for China fell to a one-year low of 49.2, from 49.6, pushing deeper below the 50-point level that is supposed to separate growth from contraction.
“The worse-than-expected PMI suggests downside risks to China’s 2015 growth outlook,” analysts at Barclays wrote in a note to clients.
“We believe downside risks to growth and inflation are materializing given the disappointing Q1 growth rate, and maintain our below-consensus 6.8 percent growth forecast for 2015,” they said.
The soggy outcome illustrated why the People’s Bank of China on Sunday cut the amount of cash that banks must hold as reserves to help spur lending.
It slashed the reserve requirements by a bigger-than-expected 100 basis points (bps).
“We continue to call for two more 50bps reserve requirement ratio cuts and three more 25bps benchmark rate cuts over the rest of the year,” Nomura analysts said in a research report.
Hopes of yet more stimulus have helped sparked a massive rally in the local share market. The CSI300 index of the largest listed companies in Shanghai and Shenzhen has risen more than 30 percent so far this year.
It briefly scaled a fresh seven-year peak of 4,767.9 in the wake of the survey, but has since drifted off the high.
The report was not all bad, with overseas demand picking up this month and new export work rising for the first time in three months.
A separate survey showed that Japan’s PMI slid to 49.7 from 50.3 in April as new orders continued to shrink and manufacturing production fell for the first time since July last year.
Yet the rate of decline for production was only fractional and encouragingly employment returned to growth.
“Meanwhile, reports of a favorable yen/dollar rate continued to help improve price competitiveness, as companies noted a rise in new export orders for the tenth consecutive month,” Markit economist Amy Brownbill said.
The result is unlikely to drive the Bank of Japan into action. The Japanese central bank has steadfastly maintained its outlook for a recovery that will keep the economy on track to hit its 2 percent inflation goal over time.
At next week’s policy review, the bank is expected to hold off on expanding its already massive monetary stimulus, but might lower its inflation forecasts.
Meanwhile, the PMI surveys for the eurozone released yesterday showed German manufacturing activity dropped to 51.9 from 51.5 last month, while a French PMI unexpectedly dropped to 50.2 from 51.5.
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