- The NBS manufacturing PMI improved from 50.5 to 51.0 in February, marking the third month in a row with a slight improvement. Details were stronger than in the HSBC PMI, with both new orders and export orders improving in February. Manufacturing PMIs \released in India and Taiwan this morning were also strong.
- Today’s NBS manufacturing PMI suggests GDP growth is improving moderately although it currently remains slightly below trend. With NBS PMI improving for the third month in a row, it appears that China is far from a hard landing at the moment. Details
China’s NBS manufacturing PMI (China’s official PMI) improved slightly from 50.5 in January to 51.0 in February (consensus: 50.9, Danske Bank: 50.7). Similar to the development in the HSBC manufacturing PMI, this was the third consecutive month with a slight improvement. The final estimate for February HSBC manufacturing PMI was today revised marginally lower to 49.6 from 49.7 in the flash estimate.
Within the NBS PMI, new orders improved from 50.4 to 51.0. Notably, export orders improved substantially from 46.9 to 51.1. However, there are substantial seasonal distortions in the NBS manufacturing PMI, particularly export orders. If we use our own seasonal adjustment, new export orders improved from 51.1 in January to 52.9 in February. Compared with the HSBC PMI, the NBS PMI currently paints a more positive picture for China’s exports, as the HSBC PMI showed a decline in export orders in February. The new order-inventory balance declined slightly in February, but is still substantially off the low reached in December last year (see chart on next page).
Taiwan and India also released manufacturing PMIs this morning (see chart on next page). Taiwan’s manufacturing PMI improved markedly from 48.9 in January to 52.7 in February (highest levels since May 2011). New orders surged from 47.2 to 54.2 and new export orders jumped from 46.9 to 53.9. As the Taiwanese economy is highly dependent on China, this development also suggests some improvement in the Chinese economy. India’s manufacturing PMI declined slightly from 57.5 in January to 56.6 in February. However, it comes on the back of an extraordinarily large improvement in the previous months and new orders did improve slightly from 62.2 to 62.8.
Assessment & outlook
For China the message continues to be that the economy seems to be stabilising, although he level of the manufacturing PMIs still suggests GDP growth slightly below trend in the current quarter. With the HSBC manufacturing PMI improving slightly for the third month in a row, it also appears that the Chinese economy is far from a hard landing scenario at the moment. We expect the manufacturing PMIs to continue to improve to the 52-53 range by the end Q2 12 – consistent with GDP growth slightly above trend.
As today’s NBS manufacturing PMI suggests that China is avoiding a hard landing and growth is possibly improving slightly, it also suggests that monetary easing in China will continue to be cautious. We expect the reserve requirement to be cut twice more by 50bp in H1 12 but do not expect the leading interest rate to be cut.