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China PMI December 2018

China: Manufacturing sector contracts for first time in over two years in December

The manufacturing purchasing managers’ index (PMI) published by the National Bureau of Statistics (NBS) and the China Federation of Logistics and Purchasing (CFLP) dipped from 50.0% in November to 49.4% in December. The print was the lowest reading since February 2016 and came in below the 49.9% that market analysts had expected. Consequently, the index now lies below the 50.0% threshold that separates expansion from contraction in the manufacturing sector for the first time since August 2016.

The deterioration in manufacturing conditions came on the back of a decline in new orders—the first in nearly three years—as well as weaker output growth. Subdued operating conditions translated into a new drop in job creation. Inventories of raw materials declined in December, whereas the supplier delivery time sub-index improved. New export orders, a proxy for future activity, declined for the seventh consecutive month, while input prices—a reliable leading indicator for inflation—deteriorated markedly mainly due to falling oil prices.

Analysts at Nomura state that:

“The weak official manufacturing PMI released today supports our view that the worst is yet to come. Looking ahead, we see more headwinds to growth from weakening domestic demand, the ongoing credit downcycle, a cooling property sector and lingering China-US trade tensions. We maintain our call for more policy easing/ stimulus in the quarters ahead.”

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