Ho Woei Chen, CFA, an economist at UOB Group, assesses the latest PMI data in China. He estimates that the drop may have been due to cold weather and problems in the electricity supply due to increases in demand.
Key statements:
“Both China Logistics and Purchasing (CFLP) manufacturing and non-manufacturing PMI softened in December. Manufacturing PMI fell from a 3-plus year high of 52.1 in November to 51.9 in December (Bloomberg survey: 52.0) while the non-manufacturing PMI fell to 55.7 in December (Bloomberg survey: 56.3) from a peak of 8 years and a half of 56.4 in November. “
“The lower readings in December could have been due in part to cold weather and reported power outages to some industrial and commercial users, as the system was unable to cope with increased demand. Nonetheless, the underlying economic recovery momentum in China likely remained intact as COVID-19 is contained domestically, keeping demand strong in the coming months. For the fourth quarter of 2020, We maintain our GDP growth forecast for China of 6.2% YoY (3Q20: 4.9%) with our GDP growth for the full year 2020 at 1.9% and projected at 8.2% in 2021“.
“The manufacturing PMI is now in its 10th consecutive month of expansion, defined as a reading above the 50 threshold. In December, the main components include production (54.2 from 54.7 in November), new orders (53.6 from 53.9 in November) and new export orders (51.3 from 51.5 in November) decreased. “
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