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Fast Comment ChinaPMIs surprisingly back at strong levels

  1. Both manufacturing PMIs increased unexpectedly
  2. Likely driven by higher commodity prices
  3. Slowdown ahead
Both manufacturing PMIs increased unexpectedly
The Manufacturing PMI from Markit increased to 51.6 in August from 51.1. Moreover, the corresponding official PMI (released yesterday) increased to 51.7 from 51.4. Both were expected to have dropped. Thus, both indices are back at the strong levels they reached late last year (see chart). The growth slowdown that we expect for the remainder of the year does not appear to have started yet, at least not in the industrial sector, although the official service PMI fell markedly.
Likely driven by higher commodity prices
The PMI rebound was preceded by an increase in industrial commodity prices, likely driven by the clean-up and capacity shutdown process in Chinese industry. As such, the higher PMIs do not necessarily reflect stronger demand. On the other hand, the global growth outlook has improved, thereby buoying the outlook for Chinese exporters.
Slowdown ahead
We continue to foresee a gradual growth slowdown during the remainder of the year as the authorities' efforts to dampen credit growth hits overall activity. This should be reflected in slower growth of the 'hard' activity indicators in August (to be released in a few weeks' time). If not, we will have to rethink our 'gradual slowdown' scenario.

Source: Macrobond


Bjarke Roed-Frederiksen

Senior Economist

Latin America and China

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