China PMI drops to 9-month low in August on weak external demand

03 September 2012 07:47  [Source: ICIS news]

SINGAPORE (ICIS)--China's Purchasing Managers Index (PMI) has dropped to a nine-month low of 49.2% in August, mainly dragged down by weak external demand, but the economic situation shows a sign of bottoming out, analysts said on Monday.

August PMI showed a 0.9 percentage point drop from July, continuing the decline of 0.1 percentage point recorded in the previous month, according to the China Federation of Logistics & Purchasing (CFLP), which released the official data on 1 September.

The number was below the demarcation point of 50%, indicating a contraction in manufacturing.

China’s new-order sub-index declined to 48.7% in August, down by 0.3 percentage point from July, while the production index was 50.9%, down by 0.9 percentage point from July, according to the CFLP data.

China’s export index in August was stable at 46.6% in August from July, while its import index increased by 2 percentage points to 47%, according to CFLP data.

Despite the drop in PMI, the decline in the new-order index and unchanged export index showed that orders volumes held by companies are stablising, an analyst Zhang Liqun from UBS Securities said.

Economic growth slowdown is expected to end and the overall production level in the manufacturing industry is expected to recover steadily. Export orders will rise soon, Zhang said, with an optimistic outlook.

The drop in PMI indicates that China’s economy is still slowing down, and the government must take more supportive measures such as cutting its requirement ratio  (RRR) and interests, an analyst named Lin Caiyi from Guotai Junan Securities said.

However, China’s economy is expected to make a soft landing. China is likely to reduce its RRR in September and October, but the easing of monetary policy will not be large-scale, an economist Lu Ting from Merrill Lynch said.

By: Viola Pan
+65 6780 4359

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