Purchasing Managers’ Index (PMI), the benchmark index, for Chinese manufacturing sector was 49.4 in January indicating a consecutive sixth month fall in activities. The prediction by Analysts was 49.6. In the previous month it was 49.7 and has been falling for the last almost three and a half years, since August 2012, according to an official survey. The mark below 50 indicates negative growth.
The manufacturing sector reels under strain as the key sectors were under pressure due to low prices and excess capacity in sectors including steel and energy. As indicated, the fall in PMI continues for the last six months.
The index of Chinese leading shares CSI300 and the Shanghai Composite fell nearly 3%, while Nikkei in Japan and ASX/S&P 200 in Australia had risen instead.
South Korea, whose main major business is with China, recorded fall in exports, which added to the fall of oil prices, based on the above data. Brent crude was $35.54 per barrel, 45 cents or 1.25% fall from previous close.
“The electricity production remained sluggish and the crude steel output continued the weak trend in January, reflecting an ongoing deleveraging process in the industrial sectors.” According to Zhou Hao, an economist at Commerzbank. He also stated that this has led China to effect capacity reduction in many sectors aggressively leading to the downward pressure.
As per National Bureau of Statistics (NBS) the non-manufacturing PMI was 53.5 against 54.4 in December. The services sector however helped China to counter the slowdown in manufacturing.
The services sector is crucial to China’s growth to counter the decline in manufacturing and being watched by analysts, if in 2016 also its will help sustain growth.
“It is quite concerning that the significant monetary and fiscal stimulus in 2015 has only managed to slow the rate of decline in China’s industrial activity” said Angus Nicholson of IG in Melbourne.
“The first quarter of activity is always the weakest in China due to the seasonal disruption of Chinese new year, and there is the possibility of global markets reacting very negatively when the quarterly data starts filtering out in March and April.”
South Korea’s exports nosedived in January exposing the China slowdown. This was mainly because of fall in demand from China which was 18.5% down from previous year, 14.1% in December, marking a 13-month decline. The biggest fall of 21.5% in January is the worst since May 2009, expecting a worsening situation further.
The above situation may lead Bank of Korea to revisit the policy in the meeting of February 16.
Lee Sang-jae, chief economist at Eugene Investment & Securities, said: “Export performance was poor due to a cooling global economy and declining prices for exports. It’s been like this since the fourth quarter and we’ll see this kind of low through March and April.”
“Shipments being this weak means a recovery in consumption is urgently needed. If you look at the economy as a whole, this might boost the need for policy easing.”
