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China: Caixin manufacturing PMI fell to 49.7 in December - ING

Iris Pang, economist at ING, points out that China’s December Caixin manufacturing PMI fell from 50.2 in November to 49.7, in line with the official manufacturing PMI, which fell from 50.0 to 49.4.

Key Quotes

“New orders of the two PMIs also fell from expansion to contraction. This means not only that the export sector faces shrinking manufacturing activities but that the domestic manufacturing sector in general also faces contraction.”

“Together with a fall in industrial profits of 1.8%YoY in November from +3.6%YoY in October, and softer retail sales growth (8.1% in November from 8.6% in October), we can confirm that the economy is weakening.”

“We currently estimate CNY 4 trillion fiscal stimulus (though if the economy weakens much more, this figure is likely to rise) as well as 4 further required reserve ratio cuts (0.5% to 1% each) and two interest rate cuts (5bps each) in 2019 to support the economy. If needed, local governments will ease housing measures. These measures should help support our forecast of 6.3% GDP growth for 2019.”

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