China: Policy measures support domestic sector – Standard Chartered

China’s official manufacturing PMI moderated to 51.2 in July from 51.5 in June on weaker production activity, notes the research team at Standard Chartered.

Key Quotes

“The production sub-index eased by 0.6ppt to 53.0. The demand outlook appears to have dimmed, with the new orders PMI dropping 0.9ppt and the imports PMI falling below the 50 threshold.”

“New export orders stayed at 49.8, suggesting weaker external support. Furthermore, the non-manufacturing PMI ended its five-month-long uptrend, edging down 1.0ppt to 54.0 due to a slowdown in services and construction activity.”

“Although the official PMIs weakened in July, real activity may have picked up on a favourable base effect and supportive measures such as the reduction of tariffs on automobiles and selected consumer goods, which became effective at the start of July.”

“We expect retail sales to have improved further in the month. Industrial production (IP) growth may have edged up mainly on a low base.”

“We expect fixed asset investment (FAI) growth to have improved on an infrastructure investment recovery. Local-government bond issuance accelerated in July.”

“CPI inflation likely inched up in July on higher non-food inflation. The services selling prices PMI rose to its highest level since February. Meanwhile, PPI inflation may have eased due to a high base.”

“The trade data likely softened due to mutual trade tariffs imposed by China and the US.”

“We expect money and credit growth to pick up due to the 0.5ppt reserve requirement ratio (RRR) cut and the authorities’ issuance of guidance on support for SME financing.”