China economic recovery to be short-lived despite manufacturing rebound as analysts fail to upgrade forecasts

The private Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) edged up on Monday following a surprise growth in the official index at the weekend

Expansion across China’s factories in November has not led to any upgrade in economic growth forecasts for 2020

Reading Time:3 minutes

The official manufacturing purchasing managers’ index (PMI) rose to 50.2 in November from 49.3 in October and above the 49.5 predicted in a Bloomberg poll of analysts. Photo: AP

Published: 8:15pm, 2 Dec 2019Updated: 9:21am, 3 Dec 2019

China’s weakening economy is showing signs of short-term stabilisation, following two batches of positive manufacturing data and the increased likelihood of a pause in the trade war with the United States, analysts said, although they fell short of upgrading their economic growth forecasts for 2020.

The private Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) for smaller private factories edged up to 51.8 in November from 51.7 in October, according to data released on Monday. This was the strongest growth in nearly three years and followed a surprise growth in the official manufacturing PMI, conducted by the National Bureau of Statistics, which on Saturday expanded for the first time in seven months.

But expansion across China’s factories in November has not led to any upgrade in economic growth forecasts for 2020, with many aware that the official manufacturing PMI grew in March and April, only to slip quickly back into contraction.

The private Caixin PMI, and the new order indices [within that] suggest that we are seeing a range of forward looking indicators that confirm some evidence of near term stabilisation

John Woods

“The private Caixin PMI, and the new order indices [within that] suggest that we are seeing a range of forward looking indicators that confirm some evidence of near term stabilisation,” said John Woods, chief investment officer for Asia-Pacific at Credit Suisse, suggesting the influence of seasonal factors as manufacturing firms restock inventory in preparation for new year production.

According to Woods, China’s weakening economy is also being cushioned by the central bank’s incremental easing measures that are aimed at supporting the property sector, the second largest pillar of the economy and a major growth driver in the past.

The People’s Bank of China last month cut the five-year loan prime rate, which is used to price housing mortgages, and the move could suggest a softening in regulatory stance toward the property market.

Aninda Mitra, senior sovereign analyst for BNY Mellon Investment Management, said an expected pause in the US-China trade war was a reason for greater certainty in a stabilising economy.