China: Recovery looks intact despite softer PMIs – UOB

Economist at UOB Group Ho Woei Chen, CFA, reviews the latest PMI data in the Chinese economy.

Key Quotes

“The private sector Caixin manufacturing Purchasing Manager’s Index (PMI) dropped for the third consecutive month, by 0.6 points to 50.9 in February (Bloomberg est 51.4 from 51.5 in Jan). The index is now at its lowest since June 2020.”

“The moderation mirrored a pullback in the official manufacturing PMI from China Federation of Logistics & Purchasing (CFLP) released on Sunday. The CFLP manufacturing PMI had also fallen by a larger-than-expected 0.7 points to 50.6 in February (Bloomberg est 51.0 from 51.3 in Jan).”

“Both the CFLP and Caixin manufacturing PMIs have topped out in November 2020. The declines in the manufacturing and non-manufacturing PMIs were also much larger than market’s expectation in February which further indicates a softening outlook. However, China’s macroeconomic data are prone to distortion in Jan-Feb due to the Lunar New Year holiday while the coronavirus resurgence in some parts of China might have also affected the survey results. However, the distortion this year might be less due to less travel during the Lunar New Year period which will allow businesses to resume operations much faster. We also look for an improvement or at least a stabilisation in the data from March to indicate that the broad economic recovery in China is still intact this year.”