Global deflation pummels China's manufacturing growth

02 Feb 2015


Chinese manufacturing growth is reported to have slipped for a second consecutive month in January amidst falling demand and a global deflation, adding to pressures on the government to roll out measures to boost the world's second-largest economy.

The HSBC purchasing managers' index of Chinese manufacturing output released today showed a modest increase to 49.7 in January from 49.6 in December, but still below the 50 point mark, below which growth turns negative.

It was the second straight month that the HSBC/Markit Purchasing Managers' Index (PMI), which is based on a survey of factory purchasing managers, showed a contraction in manufacturing.

HSBC's chief China economist Qu Hongbin said, "demand in the manufacturing sector remains weak and more aggressive monetary and fiscal easing measures will be needed to prevent another sharp slowdown in growth."

China's still-expanding manufacturing output risks a drying up of demand as global deflation looms large for 2015. Surveys of China's manufacturing sector showed excess production and slack demand in January, which drove down prices.
The official PMI, which is biased towards large Chinese factories, showed activity shrink for the first time in nearly 2-1/2 years. The reading of 49.8 in January was down from 50.1 in December.

Obviously, cheaper energy prices failed to benefit China, one of the world's biggest energy consumers.
Analysts expect the weakening of the Chinese economy to fuel more monetary easing and a weakening of the yuan.

China clearly needs a stimulus as all surveys showed manufacturing struggling at the start of the year.
Against this, in Japan, where the central bank has been pursuing an aggressive bond-buying campaign for over a year now in a bid to revive growth and shake the country out of decades of deflation, the final Markit/JMMA PMI edged up to 52.2 in January, from an early 52.1 and December's 52.0, marking the eighth straight month of expansion.
South Korea's PMI returned to growth for the first time in five months, with a rise of 1.2 points to 51.1 in January, the highest reading since May 2013, following a steady growth in exports.
India's manufacturing activity also continued to grow in January, though the headline index eased a touch to 52.9 from a two-year peak of 54.5 the month before.

With cost pressures falling to the lowest in nearly six years months as commodity prices fell, business expects an easing of policy rates by the Reserve Bank of India.

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