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Chinese economy still in expansionary camp – Danske Bank

FXStreet (Edinburgh) - Flemming Nielsen, Senior Analyst at Danske Bank, assessed the recent release in the Chinese economy.

Key Quotes

“China’s official manufacturing PMI released by China’s National Bureau of Statistics (NBS) in August declined to 51.1 (consensus: 51.2, DBM: 51.2) from 51.7 in July broadly in line with expectations. The HSBC/Markit manufacturing PMI released in its final version this morning declined to 50.2 (revised down from 50.3) from 51.7 in July. For both manufacturing PMIs this is the lowest level since May”.

“The details in the NBS manufacturing PMI were relatively weak. New orders declined to 53.2 from 54.2, while export orders declined slightly to 50.0 from 50.8 in July”.

“The finished goods inventory component in the NBS manufacturing PMI increased slightly to 48.1 from 47.6 and hence the new order-inventory-balance deteriorated slightly in August. However, in both manufacturing PMIs the deterioration in the new order-inventory-balance has been modest and the level remains relatively healthy”.

“Today’s NBS manufacturing PMI confirms that the Chinese economy again has lost some momentum and the manufacturing PMI appears to have peaked unless monetary policy and fiscal policy are eased substantially soon”.

“In our view there are three possible explanations for the recent weakness: 1) continued weakness in the property market, 2) the impact from fiscal stimulus has started to wane with infrastructure spending showing signs of slowing in July and 3) the accelerated corruption campaign in recent months could have started to weigh on investment demand”.

“The manufacturing PMI is expected to continue to decline slightly in the coming months. If the manufacturing PMIs move below 50 in the coming months, an interest rate cut can no longer be ruled out, even though the Chinese government has been reluctant to use monetary stimulus and has preferred fiscal stimulus instead”.

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