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Downside driven by broad weakness
By Morgan Stanley research |
September 5, 2012, Wednesday
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Print Edition
Print Edition
CHINA'S official manufacturing Purchasing Managers' Index reading dipped into contraction territory for the first time in nine months at 49.2 in August, down from 50.1 in July.
The steep fall was driven by the broad-based negative contributions from all five relevant sub-components: raw materials inventory, production, supply delivery, new orders, and employment.
PMI slipped to 50.1 after seasonal adjustments (compared with 51.0 in July). The headline reading dropped despite the favorable seasonal patterns, which historically have added 0.5 percentage point on average to August's reading compared with July's.
All sub-components softened after seasonal adjustments. In particular, the sharply smaller expansion in new orders for this month appeared to have been driven by the weakness in domestic demand despite some stabilization in external demand, which showed a slightly smaller contraction in August.
The deterioration in headline and seasonally-adjusted readings suggested that the underlying growth momentum has not gained traction so far, but could have started to stabilize as the effect from the government's policy loosening has begun to feed through to the real economy.
After Premier Wen Jiabao pledged to shore up the economy, local governments have announced a raft of multi-year investment projects as concerted efforts to sustain growth.
We continue to expect more coordinated fiscal and monetary measures to support the construction of these projects. In our view, a gradual pickup in infrastructure, transport and local investment should support growth in the second half of this year.
The article was adapted from a research note written by Helen Qiao, Ernest Ho and Yuande Zhu with Morgan Stanley Asia Limited. The opinions expressed are their own.
The steep fall was driven by the broad-based negative contributions from all five relevant sub-components: raw materials inventory, production, supply delivery, new orders, and employment.
PMI slipped to 50.1 after seasonal adjustments (compared with 51.0 in July). The headline reading dropped despite the favorable seasonal patterns, which historically have added 0.5 percentage point on average to August's reading compared with July's.
All sub-components softened after seasonal adjustments. In particular, the sharply smaller expansion in new orders for this month appeared to have been driven by the weakness in domestic demand despite some stabilization in external demand, which showed a slightly smaller contraction in August.
The deterioration in headline and seasonally-adjusted readings suggested that the underlying growth momentum has not gained traction so far, but could have started to stabilize as the effect from the government's policy loosening has begun to feed through to the real economy.
After Premier Wen Jiabao pledged to shore up the economy, local governments have announced a raft of multi-year investment projects as concerted efforts to sustain growth.
We continue to expect more coordinated fiscal and monetary measures to support the construction of these projects. In our view, a gradual pickup in infrastructure, transport and local investment should support growth in the second half of this year.
The article was adapted from a research note written by Helen Qiao, Ernest Ho and Yuande Zhu with Morgan Stanley Asia Limited. The opinions expressed are their own.
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