Weaker Than Expected PMI Suggests Intensifying Slowdown

China's HSBC Flash Purchasing Managers' Index (PMI) plummeted to 48.3 in February, marking its lowest point since July 2013. The result missed market expectations of 49.5 by a considerable margin, and also represented a notable decline from January's 49.5 figure. Weakness was broad based across the index, with the employment, output prices, and input prices sub-indices all declining by a faster rate in February than January. Likewise, the disappointing data also flew in the face of recently released credit figures ( see 'Liquidity Surge Doesn't Change Tightening Outlook', February 17), further corroborating our view that economic activity is under increasing pressure despite a transitory spike in lending.

Employment Sub-Index Particularly Concerning

Poor manufacturing data will tighten the screws on Beijing's planned economic reforms, allowing less room to maneuver with its crackdown on the shadow banking sector, as well as with its planned liberalisation of interest rate policies. Despite the fact that such policies would, in our eyes, prove to be substantial positives in the long-run, they would most likely be growth negative at the outset, thereby undermining what we believe is already a shaky economic growth outlook. On this front, the most concerning data point emerging from February's flash PMI data is the contraction in the employment index, which clocked in at a stark 46.9, its lowest point since February 2009.

Deeper Into The Doldrums
China - HSBC Flash PMI

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Geography: China

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