September 26, 2012 / 3:12 AM / 5 years ago

China's Sept official PMI expected to show stabilization

3 Min Read

A labourer works at a textile mill in Huaibei, Anhui province June 1, 2012.Stringer

BEIJING (Reuters) - China's official manufacturing managers' index (PM) may have edged up to 49.8 in September from a nine-month low of 49.2 in August, signaling that the economy may be stabilizing as recent pro-growth measures gained traction.

While the world's second-largest economy may not deteriorate further, few analysts expect a sharp turnaround given stiff global headwinds as Europe, the largest customer for Chinese exports, slips towards a recession and the U.S. recovery loses steam.

The HSBC Flash China PMI published last week showed activity stabilized in September after hitting a nine-month low in August, with the headline number edging up to 47.8 from 47.6 last month.

A PMI reading below 50 suggests factory activity contracted, while a number above 50 points to expansion.

"I'm looking at stabilization at this stage. It is too soon to declare that a clear recovery is underway as downside pressure looms amid sluggish external demand," said Connie Tse, an economist at Forecast Pte in Singapore.

"Asian central banks have chosen to stay away from splurging on policy ammunition, taking the view that there may be more rainy days ahead."

China's annual economic growth could ease to 7.4 percent in the third quarter -- the seventh consecutive quarter of slowdown, before picking up to 7.6 percent in the final three months, according to the latest Reuters poll.

China's central bank said on Tuesday that it will "fine tune" policy to cushion the economy against global risks while closely watching the possible impact from recent policy loosening in the United States and Europe.

The central bank cut interest rates twice in June and July and lowered banks' reserve requirement ratio (RRR) three times since late 2011 as part of efforts to support the economy.

But in recent weeks the bank has opted to pump short-term cash into money markets to ease credit strains, rather than take more substantial measures to loosen policy for fear of feeding upward pressure on property prices and inflation.

Analysts still expect further policy loosening, including cuts in RRR or even interest rates in the coming months.

In addition, the government has been fast tracking some infrastructure projects and quickening the payment of tax rebates to exporters.

The official PMI survey will be released on October 1, at 0100 GMT (9 p.m. EDT on September 30), followed the final HSBC PMI reading on Saturday.

Reporting by Beijing economic team, writing by Kevin Yao; Editing by Simon Cameron-Moore

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