Activity in China’s factory sector dipped to a 11-month low in March as new orders shrank, a private survey showed, signalling persistent weakness in the world’s second-largest economy that will likely fuel calls for more policy easing to support growth.
The poor reading added to signs that the economy has lost momentum despite two interest rate cuts since November, a reduction in the amount of money banks must keep in reserve and repeated attempts by the central bank to reduce financing costs.
The flash HSBC/Markit Purchasing Managers' Index (PMI) dipped to 49.2 in March, below the 50-point level that separates growth in activity from contraction on a monthly basis.
Some analysts expect first-quarter economic growth to dip below the government’s new full-year target of 7 percent - widely seen as the level needed to keep employment steady. “The weaker PMI data could increase pressure for policy loosening,” economists at CICC said in a research note.
They predicted the central bank would cut banks' reserve requirement ratios (RRR) six more times this year, on top of another interest rate cut. JPMorgan said the next RRR cut may come as soon as April. Asia stocks fell after the PMI report on Tuesday, with shares in Shanghai skidding more than 2 percent, while the Australian dollar dipped.
The survey suggested that manufacturers faced considerable challenges from weaker domestic demand and deflationary risks. The new orders sub-index fell to a 11-month low of 49.3 in March. New export orders decreased for a second straight month, albeit at a slower pace.
Strains on the job market continued to rise, with the employment sub-index contracting for a 17th straight month and hitting its lowest since the depths of the global financial crisis.
China's leaders have said they would be willing to tolerate somewhat slower growth as long as the labour market remained resilient. "A renewed fall in total new business contributed to a weaker expansion of output, while companies continued to trim their workforce numbers," said Annabel Fiddes, an economist at Markit said. "Manufacturing companies continued to benefit from falling input costs, stemming from the recent global oil price decline. However, relatively muted client demand has led firms to pass on savings in a bid to boost new work, and cut their selling prices at a similarly sharp rate." In Japan, a similar manufacturing survey added to concerns that its slowly recovering economy also may be losing momentum, with activity expanding at a much slower clip as domestic orders contracted.
Reuters
