China: PMIs suggest silver lining in weak growth – Commerzbank

Tommy Wu, Senior Economist at Commerzbank, offers a brief analysis of the official Chinese PMIs released on Thursday, which have shown that Business activity in the manufacturing sector picked up somewhat in August, although it remained in contraction territory for the fifth consecutive month. Besides, growth in the non-manufacturing sector moderated more than expected and did little to ease concerns about worsening economic conditions in China.

Notable Statements:

“Although today’s official PMIs suggest the Chinese economy has continued to lose momentum, the underlying trends were mixed. The PMI components suggest production improved more visibly to 51.9 from 50.2 previously. New orders returned to expansionary territory at 50.2 The improvement was probably due to domestic demand as new export orders have remained very weak at 46.7 in August.”

“Services, which have been the key to China’s post-pandemic recovery, lost more steam. It was dragged down by the services component, which fell to 50.5 from 51.5 previously. However, the construction component rebounded sharply to 53.8 from 51.2 previously This likely reflects increased investment in infrastructure as the government has redoubled its efforts to support growth, albeit selectively.”

“The weak prospects for the labor market do not bode well for the economic recovery. The employment component, in both the manufacturing and non-manufacturing sectors, remained visibly below the neutral level of 50, at 48.0 and 46.8, respectively .”