China's economy has lost some momentum

Kevin Frayer/Getty Images
  • China’s economy lost some momentum in April with activity levels at manufacturing and non-manufacturing firms improving at a slower pace than March.
  • New domestic orders grew at a slower pace while orders abroad continued to decline. Firms also continued to reduce staffing levels.
  • Nomura says that if policymakers implement pull-back on stimulus measures, there could be a double dip in the Chinese economy in the months ahead.

Momentum across the Chinese economy eased a touch in April with activity levels at manufacturing and non-manufacturing firms improving at a slower pace than March.

The government’s Manufacturing Purchasing Managers Index (PMI), released by China’s National Bureau of Statistics (NBS), fell to 50.1 in seasonally adjusted terms, down 0.4 points on the level reported in March.

Markets had been expecting the PMI to remain steady at 50.5 in April.

This PMI measures perceived changes in activity levels across China’s manufacturing sector from one month to the next.

Anything above 50 signals that activity levels improved while a reading below suggests they are deteriorating. The distance away from 50 indicates how quickly activity levels are expanding or contracting.

So at 50.1, activity levels were basically unchanged from a month earlier.

The NBS said activity levels at large manufacturers improved at a slower pace in April, dipping 0.3 points to 50.8, while conditions for both medium and small-sized manufacturers continued to deteriorate from March.

Production and new orders both grew at a slower pace while new export orders fell for an 11th consecutive month. Order backlogs continued to decline, as they have done for over a year, leading manufacturing firms to cut staff at the fastest pace in over 12 months.

Mirroring the performance from the manufacturing sector, activity levels across China’s non-manufacturing sectors also improved at a slower pace than March.

The government’s non-manufacturing PMI eased to 54.3 after accounting for seasonal patterns, down from 54.8 a month earlier.

New domestic orders at non-manufacturing firms grew marginally, and at a slower pace than March, while new export orders declined for a second month.

Staffing levels were also reduced for an eighth consecutive month.

Although activity levels across the Chinese economy have improved compared to the levels seen late last year and in early 2019, the moderation in April provides a reminder that China’s economy still remains fragile despite recent stimulus measures from policymakers.

“The dash of stimulus played a key role in pushing up the data in March, which is the first month following the Lunar New Year (LNY) holiday, but the rapid improvement in March data were also a result of some temporary special distortions,” said members of Nomura’s Asia Economics team prior to the release of the PMI reports.

“We believe the growth recovery is as yet not solid despite the rebound in March data, and there could be a double dip in the next few months.”

Noumura says it’s far too premature for Chinese policymakers to pull back on stimulus in the months ahead.

“We believe Beijing can’t afford to stop easing yet,” it said.

“We believe the pace of monetary easing will slow, but it still seems too early to withdraw monetary easing measures despite the limited monetary policy scope.”

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