Capital Economics: Chinese manufacturing activity to rebound in April

Photo: Brendon Thorne / Getty Images.

Chinese manufacturing activity disappointed in April, like the vast majority of data released during the month, with the HSBC-Markit manufacturing PMI dropping to a 10-month low of 49.6.

Markit economist Annabel Fiddes had this to say following the release of the disappointing March result:

“The HSBC China Manufacturing PMI fell back below the neutral 50.0 mark at 49.6 in March, as the sector continues to struggle to gain growth traction. The latest data indicate that domestic and foreign demand remains subdued amid weaker market conditions, which dampened output growth as a result. Meanwhile, company downsizing policies contributed to a further decline in manufacturing employment, with the pace of job shedding the strongest since last summer. Despite the sustained fall in cost burdens, any savings were generally passed on to clients as part of attempts to attract new business, suggesting a further squeeze on profit margins.”

Not very encouraging, you’d have to say – weak domestic and foreign demand leading to lower output, company downsizing, job shedding and falling profit margins.

Still, perhaps there were other factors at play that explain the weak result.

Chang Liu, economist at Capital Economics, believes that the weakness was “largely due to seasonal distortions caused by an unusually late New Year”. Liu believes that the removal of these distortions – along with additional policy support and the breakneck rally in Chinese equities – will see the PMI gauge rise to 50 in April.

Will they be on the money? We’ll find out soon enough with the April PMI report released today at 11.45am in Sydney.

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