- China's HSBC manufacturing PMI rebounded to 51.7 in March from 50.4 in February, confirming that the weakness evident in February was mostly due to distortions from the Chinese New Year. The rebound in the HSBC manufacturing PMI suggests that the Chinese economy remains in a moderate acceleration phase, and ,should relieve some of the fears that the moderate recovery in China has stalled.
- Both output and input price components both dropped below 50, suggesting that underlying inflationary pressure remains subdued. This implies that the People's Bank of China will not move to a tightening bias anytime soon.
The flash estimate for China HSBC manufacturing PMI rebounded to 51.7 in March (consensus: 50.8, DBM: 51.5) from a final reading of 50.4 in February. The details were relatively strong, with new orders improving from 51.4 to 53.3 and exports improving from 50.3 to 51.1. The finished goods inventory component increased slightly as did the new order-inventory balance, although overall, the latter remains in a neutral state.
The rebound in the HSBC manufacturing PMI suggests that data in February was distorted substantially by the Chinese New Year public holiday. For Q1 13 as a whole, the average level of the HSBC manufacturing PMI was 51.5 compared with 50.5 for Q4 12. The HSBC manufacturing PMI suggests the Chinese economy remains in a moderate acceleration phase, contrary to the recent industrial production data that suggested that growth did not improve in Q1 13.
While export orders developed reasonably in March, it remains out of line with the extraordinarily strong development in exports, evident in foreign trade data for recent months. The HSBC PMI suggests that there will be a payback in exports in the coming months.
The finished goods price and input price components both dropped below 50 in March, suggesting that underlying inflationary pressure remains low.
Assessment and outlook
There has been some concern that the fragile recovery in China was starting to lose momentum on back of disappointing industrial production data for January and February. The rebound in the HSBC manufacturing PMI should come as a relief. It suggests that China remains in a moderate acceleration phase and GDP growth should improve moderately in the coming quarters, although improvement in Q1 will probably only be marginal. The HSBC manufacturing PMI also suggests that underlying inflationary pressure remains modest (we expect inflation to drop below 2.5% y/y in March from 3.2% y/y in February). The main concern for monetary policy is the acceleration in house prices evident in recent months, but overall subdued inflationary pressure does not suggest that the central bank will move to a tightening bias soon.
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