China: Manufacturing PMI expected to slow down slightly in August - Natixis

China’s national bureau of statistics (NBS) will release the PMIs for August tomorrow and although manufacturing PMI already recorded contraction in July from 51.7 to 51.4 last month, a continuous downtrend is forecast with the PMI reducing to around 51.3 mainly due to restrained input demand and tightened liquidity, according to Alicia Garcia Herrero, Chief Economist at Natixis.

Key Quotes

“Also, the non-manufacturing PMI will likely hover over 54 but not strengthen to 55.”

“While consumption and external front will contribute stable impetus to manufacturing sector, we believe that investment has past its prime time and will keep on the downward track.”

“Furthermore, the drag to PMI also stems from tightened liquidity that limits the expansion of enterprises. The central bank so far has drained liquidity by over 300bn in August and new bank loan (that has lagged impact) was also reduced by half in July than what it was in June.”

“The good news is that industrial profits recorded a 21.2% year-on-year increase in H1 with SOEs leading the growth with 34.2% more earnings than last year. Manufacturers will likely rely less on borrowing thanks to the rapid increase in profits but excessive leverages will still limit that space.”