China: PMI continues to moderate on the back of monetary tightening
June 1, 2011
The Purchasing Managers' Index (PMI) published by the National Bureau of Statistics (NBS) and the China Federation of Logistics and Purchasing (CFPL) moderated to a nine-month low in May, supporting the notion that the aggressive monetary tightening is bearing some fruit. In addition, fears about an abrupt slowdown have eased as the latest readings remain firmly in expansion mode. In May, the PMI retreated 0.9 percentage points over the previous month to 52.0%, contrasting expectations that saw the PMI moderating further to 51.6%. A reading above 50% indicates that the manufacturing sector is expanding, while a reading below 50% implies a contraction. The moderation was broad-based as all of the sub-indices registered lower readings over the previous month. In particular, declines were seen in the sub-gauges of input prices, which slowed for the third consecutive month to 60.3%, along with raw material inventories (49.5%) and new orders (52.1%). Production output slipped a more subdued 0.4% to 54.9%. Analysts expect the PMI will continue moderating in the coming months due to seasonal effects. Moreover, market participants do not anticipate authorities to scale back monetary tightening and further rate hikes are broadly expected.