China Manufacturing Slowdown Boosts Chances of Stimulus
China led a slowdown in manufacturing across Asia that adds to risks for the global economy as Europe’s sovereign-debt crisis roils markets and drags down confidence.
The Purchasing Managers’ Index fell to 50.4 in May from 53.3 in April, China’s statistics bureau and logistics federation said today in Beijing. A second gauge for China also declined, along with measures for India, South Korea and Taiwan.
In China, the reports signal a deepening economic slowdown, raising chances Premier Wen Jiabao will take more-aggressive steps to sustain expansion after he pledged a sharper focus on stabilizing growth. The government’s stimulus response may be as much as 2 trillion yuan ($314 billion), half the size of the package in 2008, Credit Suisse Group AG said this week.
“This set of data is very bad,” said Dong Tao, a Hong Kong-based economist with Credit Suisse. “China now needs some highly symbolic policy moves,” he said, adding that interest- rate cuts are becoming more likely.
China’s PMI reading compared with the 52 median estimate in a Bloomberg News survey of economists. A separate gauge from HSBC Holdings Plc and Markit Economics showed a seventh straight contraction for Chinese manufacturing, the longest since the global financial crisis.
India’s PMI was 54.8 in May from 54.9 in April, HSBC and Markit said.
The MSCI Asia Pacific Index of stocks fell 1.1 percent as of 5:08 p.m. in Tokyo. The benchmark Shanghai Composite Index rose 0.1 percent, extending gains of about 8 percent this year on speculation the government will accelerate measures to boost the economy.
For India, “the outlook for growth in the short term is very bad,” Tirthankar Patnaik, a Mumbai-based strategist at Religare Capital Markets Ltd., said before the report. “Industrial growth is slowing down and investments are not taking place.”
India’s gross domestic product increased 5.3 percent last quarter from a year earlier, the least since 2003, the government said yesterday. Inflation accelerated to 7.23 percent in April, the fastest pace among the largest emerging economies.
China’s inflation may have cooled to 3.2 percent in May from 3.4 percent in April, leaving more room for stimulus according to the median forecast in a Bloomberg survey of analysts.
For China, the policy implication from the manufacturing data “is simply more easing,” said Yao Wei, a Hong Kong-based economist at Societe Generale SA.
Liu Li-Gang, head of Greater China economics at Australia & New Zealand Banking Group Ltd. in Hong Kong, said in a Bloomberg Television interview that China needs to consider cutting interest rates, especially the benchmark lending rate, to lower borrowing costs for companies.
China has allowed the yuan to weaken against the dollar this year after appreciating 4.7 percent in 2011. The currency was at 6.3717 after dropping yesterday to the lowest close since December.
The official purchasing managers’ gauge is based on responses from managers at 820 companies. A reading above 50 indicates expansion. The index usually has a seasonal decline in May, with the reading decreasing by an average 2.7 points from April during 2005 to 2011, Lu Zhengwei, Shanghai-based chief economist at Industrial Bank Co., said before the release.
A sub-index of output had the lowest reading since November and a gauge of new orders showed a contraction for the first time in five months. The PMI was 45.2 for small companies, 51.1 for large businesses and 50.8 for medium-sized companies, indicating small enterprises are bearing the brunt of China’s slowdown.
The purchasing managers’ index from HSBC and Markit had a final reading of 48.4, compared with April’s 49.3 and the May preliminary reading of 48.7. The HSBC index covers more than 420 companies and is weighted toward smaller businesses.
Separately today, a report showed China’s home prices fell to a 16-month low in May as officials pledged to keep property curbs that have sapped buyer demand, according to SouFun Holdings Ltd., the nation’s biggest real estate website owner.
Elsewhere in the Asia-Pacific region, South Korea’s exports declined for a third month in May, falling a less-than-forecast 0.4 percent from a year earlier. Capital spending by Japan’s companies excluding software rose 3.5 percent from a year earlier, compared with the median estimate for a 0.1 percent decline in a Bloomberg News survey.
In Europe, a report may show U.K. manufacturing contracted in May. A gauge of factory output probably fell to 49.7 from 50.5 in April, according to the median estimate of 30 economists surveyed by Bloomberg News. The euro-area jobless rate rose to 11 percent in April, according to the median forecast of economists ahead of a report today.
U.S. job growth probably picked up in May after the weakest gain in six months, and the unemployment rate held at a three- year low. Payrolls climbed by 150,000 workers after a 115,000 increase in April, while joblessness was unchanged at 8.1 percent, according to median economist estimates.
China is grappling with fallout from Europe’s worsening debt turmoil, which threatens to curb exports further should Greece abandon the euro. The slowdown in overseas sales may affect whether Moody’s Investors Service raises the nation’s sovereign debt rating, Tom Byrne, a senior vice president, said May 28.
The economy may grow 7.9 percent this quarter from a year earlier in a sixth quarterly deceleration, based on the median estimate in a Bloomberg survey last month. Full-year expansion is forecast at 8.2 percent, which would be the lowest since 1999.
Wen and the State Council, or Cabinet, pledged last month to focus more on stabilizing growth after trade, industrial production and lending in April were lower than economists forecast. Authorities have since indicated they are approving more capital spending and bond sales, with the government last week permitting the 134 billion yuan construction of two steel factories after a two-year delay.
The People’s Bank of China on May 12 cut banks’ reserve- requirement ratio by 50 basis points for the third time in six months to boost liquidity and spur lending. Economists surveyed by Bloomberg last month forecast further reductions in the ratio this year. China has left benchmark interest rates unchanged since July and last lowered rates in December 2008.
The official Xinhua News Agency said in a May 29 article that the Chinese government has no intention to roll out a 2008- scale stimulus to seek high economic growth. “Current efforts for stabilizing growth will not repeat the old way of three years ago,” Xinhua said.
China’s stainless steel demand this year may grow at the slowest pace since 2001 and exports may be capped by sluggish demand overseas, Lu Ping, assistant general manager of Baosteel Stainless Steel Co., said May 24.
The nation’s zinc smelters will probably cut output more as current prices are below production costs amid high commercial inventories, Wang Jianjun, head of the operation management department at Hunan Nonferrous Metals Holding Group Co. said May 25.
“The pace of the sharp fall is a little bit surprising,” Victor Chu, chairman of Hong Kong-based First Eastern Investment Group, said today in an interview with Bloomberg Television. “The good thing is the writing has been on the wall for some time. The policy makers at the top of the Chinese government are introducing more stimulus measures right now to put more liquidity back in the market.”
--Zheng Lifei. With assistance from Ailing Tan in Singapore, Zhou Xin in Beijing and Zeb Eckert in Hong Kong. Editors: Scott Lanman, Stephanie Phang
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