Chinese Yuan: Why do weak PMIs bolster the case for policy support? – Commerzbank

The case for additional policy support has strengthened after China’s October PMI readings showed widespread weakness, according to Commerzbank’s Charlie Lay and Dr. Henry Hao. Manufacturing, non-manufacturing and composite readings all moved into contraction territory. With domestic consumption subdued and export orders weaker, the disappointing data underline the need for a meaningful fourth-quarter rebound to help achieve the government's full-year growth target.

Do weak China PMIs strengthen the case for policy support?

"China’s economic activity lost ground in October, with all three official PMI gauges falling into contraction territory simultaneously. The manufacturing PMI dropped to 49.3 (Bloomberg consensus: 49.9) vs 50.1 in September, reversing the prior month’s brief return to expansion."

"The non-manufacturing PMI fell to 49.7 (Bloomberg consensus: 50.0) vs 50.2 previously, while the composite PMI slid to 49.7 from 50.7. The breadth of the miss, spanning both the goods and services sectors, signals a fragile recovery heading into the final quarter of the year."

"The across-the-board PMI miss reinforces the case for further policy support before year-end. With Q3 GDP at 4.5% yoy, the government’s full-year growth target remains within reach but requires a meaningful Q4 rebound."

"The weakness in new export orders adds complexity to the outlook, as policymakers cannot rely on external demand to compensate for still-subdued domestic consumption."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)