Fast Comment ChinaPMIs confirm China’s slowdown

The manufacturing PMI from Markit fell slightly in June to 51.0 from 51.1 in May. The official manufacturing PMI fell from 51.9 to 51.5 following an increase of similar size the month before. Both indicators were slightly weaker than expected by consensus in June. The June readings confirm that China’s growth is now slowing gradually, as also signalled by the activity indicators for May published two weeks ago. The sub-index for new export orders of both indicators fell below the 50 threshold, indicating that the trade war is starting to hurt sentiment among Chinese exporters.

We see growth slowing gradually ahead. As the authorities try to reign in financial risks and dampen shadow banking activities, credit growth is slowing and hurting overall economic growth. Furthermore, measures to dampen the wobbly property market, especially in terms of prices, have not yet been rolled back. Add to this the impact of the trade war. The good news is that monetary policy seems to be loosened rather than tightened now. And there is ample room to ease further, if needed.