China: Manufacturing PMI eases in September; services PMI rebounds
September 30, 2021
The National Bureau of Statistics' Manufacturing Purchasing Managers' Index (PMI) came in at 49.6 in September, down from August's 50.1. September's result marked the weakest reading since February 2020. Consequently, the index dropped below the 50-threshold, signaling a deterioration in business conditions from the previous month.
The fall came on the back of a deterioration in output, and faster contractions in new orders and employment. The reading was likely linked to tighter electricity supply, amid coal shortages and as local governments looked to reduce emissions in line with the central government’s targets. Elevated input prices, on the back of high global commodity prices and supply disruptions, could also have played a role. Meanwhile the non-Manufacturing PMI rose from 47.5 to 53.2, amid a much softer contraction in new orders as recent domestic Covid-19 flare-ups were brought under control.
On the near-term evolution of the PMIs, analysts at Nomura commented:
“We expect the official manufacturing PMI to rise back above 50 into expansionary territory in October, thanks to the release of pent-up demand and a catch-up in production, premised on an expected easing of power supply constraints; however, it is unlikely to rise above 51, as Beijing’s tightening measures on the property and production curbs on industries with high carbon emissions and high energy intensity remain a drag. The official services PMI may remain solid at around 52 in October, but given China’s “zero-Covid” strategy and the potential for more infectious variants of Covid-19, any Covid resurgence could again affect the services sector in coming months.”
Author: Oliver Reynolds, Economist