Asia: PMIs a disappointment for markets, but signal resilience for growth - Westpac

Elliot Clarke, Research Analyst at Westpac, explains that China’s official October PMI reports disappointed market expectations; however, they continued to show an economy growing at a robust pace.

Key Quotes

“In October, the NBS manufacturing PMI fell from 52.4 to 51.6. That is an outcome best characterised as being in line with the long-run average and comes despite the impact of tighter environmental controls in some regions.”

“Still, given fixed asset investment has been decelerating of late, across both the private and public sector, it is likely that activity in the manufacturing sector will continue to slow through late 2017 and into 2018.”

“The new orders detail implies that this moderation will be slow. Despite having fallen almost 2pts in October, the new orders index remains at the level it has averaged since November 2016 – a strong period of growth.”

“The outlook depends as much on the external environment as it does the domestic scene. Here we also find evidence of softer momentum, but certainly not a marked deterioration.”

“Turning to the services sector, overall momentum has been a little weaker than for manufacturing. At October, the business activity index was 1.6pts below its long-run average.”

“As for manufacturing, the pipeline of new work remains robust, across both the domestic and external sectors.”

“Key for the services sector is employment growth. For both the manufacturing and services sector, this remains an area of concern. According to each of the key PMI surveys, employment growth remains materially below average. As momentum slows through 2018, this situation will likely deteriorate further – putting at risk household incomes and spending.”

“Taking a longer-term perspective, this is an area of the economy that needs considerable investment.”

“To transition to a more consumer –centric economy, incomes must trend higher across the nation. But to justify this, efficiency and productivity have to grow – otherwise businesses will look to cut costs.”