China PMI for September stays in contractionary mode

October 2, 2015

HONG KONG - Two straight months of manufacturing sector contraction with a depressed equity market suggest China’s Q3 GDP growth is likely to have slowed to 6.4%, says ANZ Bank in a commentary on new figures released today.

“However, as monetary policy easing and expansionary fiscal policy gradually take effect, we expect GDP growth to modestly rebound to 6.8% in Q4, leading to a full-year growth of 6.8%,” the bank says.

China’s official manufacturing PMI, representing the bellwether of China’s large enterprises, inched up to 49.8 in September, from 49.7 in August, although still below the benchmark level of 50, reflecting weak manufacturing activities in September. In the meantime, the Caixin manufacturing PMI, a SME and private-sector focussed indicator, fell to 47.2 in September, from 47.3 in August.
The output sub-index of the official PMI rose 0.6pt to 52.3 in September. The new orders and new export orders subindices increased by 0.5pt and 0.2pt, to 50.2 and 47.9 respectively, suggesting an small improvement in domestic demand - but still weak external demand. 
ANZ says recent monetary easing should help spur loan growth and lower the cost of funding. “That said, we believe that the current RRR remains quite high and the PBoC still has room to further relax monetary policy through cutting the RRR by another 50bps in Q4. 
“Today’s data reinforces our projection that China’s GDP growth will likely slow to 6.4% y/y in Q3, from 7.0% in Q2, as industrial sector remains sluggish. Strong growth in the financial sector in H1 (17.4%) will unlikely be sustained in Q3, given stock market turmoil. Looking ahead, monetary policy easing and expansionary fiscal policy will gradually take effect, and we expect GDP growth to rebound to 6.8% in Q4, leading to full year growth of 6.8%.”  www.live.anz.com (ATI).