China Ends 2014 On A Sour Note

China is slowing.

The HSBC manufacturing PMI fell to 49.6 in December from 50.0 in November. This was just marginally higher than the flash (preliminary) reading of 49.5.

This was the first sub-50 reading since May, and any reading below signals contraction.

According to Markit/HSBC, China’s manufacturing sector has been shedding jobs for 14 straight months.

This is not good for the world’s second largest economy.

“Today’s data confirmed the further slowdown in the manufacturing sector towards year end,” HSBC’s Hongbin Qu said. “We believe that weaker economic activity and stronger disinflationary pressures warrant further monetary easing in the coming months.”

Here are the key points from Markit:

  • Output and new orders both decline slightly
  • Job shedding persists and leads to solid increase in backlogs of work
  • Both input costs and prices charged fall sharply

“Growth in China continues to slow modestly, in line with our expectation for real GDP growth of 7.0 per cent in 2015 after 7.4 per cent in 2014,” PNC Financial Services’ Bill Adams said following the report. “China’s deepening real estate correction is the primary cause of the current slowdown. The drag from the real estate sector will be partially offset by modestly better demand for Chinese exports in 2015.”

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