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Fast Comment ChinaAnother fresh sign of stimulus kicking in

  1. Rebound in manufacturers’ confidence
  2. More stimulus on the cards
  3. Room for policy easing is limited
Rebound in manufacturers’ confidence
The Manufacturing PMI from Markit rebounded to much better than expected, to 49.9 in February from 48.3 in January. The index thereby reversed the plunge in January and is now almost back above the 50 threshold between expansion and contraction. However, the index is still below the level that prevailed during the first half of last year before economic growth started to slow. The official Manufacturing PMI fell somewhat from 49.5 to 49.2. Since the official index contrary to Markit’s is usually poorly adjusted for the New Year disturbance, we note that the decline might simply be due to the factory closings in February. We therefore focus on the rebound in Markit’s PMI, and see this as a another sign of monetary and fiscal stimuli kicking in, following a rebound in credit growth in January.
More stimulus on the cards
It will take longer, however, for easing monetary policy to reach the real economy, and more stimulus measures are to be expected over the coming months. Monetary policy will likely be eased further with the first cut since 2015 in the still important benchmark lending rate getting closer. Also liquidity injections and cuts of the reserve requirement rate to push down market interest rates should be on the cards.
Room for policy easing is limited
However, the room for stimuli is, in our view, more limited now than in earlier instances of slowing growth. The main reason is that boosting credit risks undermining and reversing the successful deleveraging campaign. Following more weakness in the coming months, stimulus measures will likely halt the declining growth and temporarily stabilise growth in Q2.


Bjarke Roed-Frederiksen

Senior Economist

Latin America and China

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