China factory outlook darkens due weak domestic demand, but how will Beijing respond?
- The Caixin manufacturing purchasing managers’ index (PMI) dropped to a three-year low, with sector contraction deepening
- Trade deal between the administrations of President Xi Jinping and American counterpart Donald Trump seen as important to halt slowdown
The larger-than-expected deterioration in manufacturing sector activity in January paints a particularly grim picture of the Chinese economy, since much of the decline was due to weaker domestic demand, suggesting the government will have to do more to spur economic growth at home.
The Caixin manufacturing purchasing managers’ index (PMI) slumped to 48.3 in January from 49.7 in December, meaning Chinese manufacturing sector activity contracted for the second month in a row, and at a faster speed than the month before.
The index fell to its lowest since February 2016 and was below the 49.5 estimated by analysts.
Because of the Lunar New Year holiday, there is a vacuum of top-tier economic data in China during the first two months of each year, meaning the private Caixin survey is among the few indicators to show the condition of the world’s second largest economy at the beginning of 2019.
“With headwinds from cooling global growth and lagged impact of slower credit growth set to intensify, China’s economy is likely to weaken further over the coming months,” said economists from Capital Economics when commenting on the Caixin survey results.
The bleak Caixin PMI underscored how important it is for China and the United States to secure a trade deal soon, according to Robert Carnell, chief economist at ING.
