Chinese Manufacturing Activity Drops In April Raising Concerns Over Second Quarter Economic Recovery

on April 23 2013 6:58 AM
China Yuan
China's yuan. Reuters

China manufacturing activity dropped to a two-month-low of 50.5 in April, pulling back from a reading of 51.6 recorded in March and indicating volatility in the world's second-largest economy, a survey by HSBC-Markit showed on Tuesday. 

The HSBC Flash Purchasing Managers' Index (PMI) -- the earliest indicator of Chinese economic activity that comes a week ahead of the final HSBC PMI -- expanded for the fourth consecutive month in April, however, was worse than the analysts’ forecast of 51.40. A reading above 50 indicates expansion.   

“The HSBC Flash China Manufacturing PMI came in at a two-month low, but still managed to expand modestly in April, albeit at a much slower pace,” Hongbin Qu, an economist at HSBC said.

The survey attributed the decline in the Chinese manufacturing activity to a teetering foreign demand and as a slow economic recovery in the euro zone and other foreign markets weigh in.

The new export orders sub-index inched down to 48.6 in April from 50.5 in March, reflecting slow recovery in euro zone and weak demand from the U.S. market, less than the 50-point mark that separates expanding activity from contraction. The lackluster demand has affected the employment generation in the manufacturing sector adversely.

Both input and output prices sub-indexes fell in April, indicating overcapacity upstream and soft demand, according to the Flash PMI survey.

"New export orders contracted after a temporary rebound in March, suggesting external demand for China’s exporters remain weak. Weaker overall demand has also started to weigh on employment in the manufacturing sector,” Hongbin said.

"Beijing is expected to respond strongly to sustain the economic recovery by increasing efforts to boost domestic investment and consumption in the coming months," he added.

The disappointing data being China’s first indicator for the second quarter has mounted the investors concern over the economic recovery in the country and has painted a bleak picture of the global economic growth.

The report also follows a weaker-than-expected first quarter gross domestic product (GDP) data reported earlier in April that prompted a sharp decline in global markets last week. The economic growth unexpectedly slowed to 7.7 percent in the first quarter of the year from 7.9 percent in the previous three months.

The analysts expect the economy to register a growth rate of 8.0 percent in 2013, up from the 7.8 percent marked in 2012 -- its lowest rate since 1999. Chinese government has set an economic growth target of 7.5 percent for the year 2013, which it believes is sufficient for the country to create employment opportunities, as reported by the Reuters news agency.   

The analysts expect the government to go ahead with the investments in infrastructure to boost the growth. However, according to local media reports, a big stimulus package is unlikely as the country aims at achieving sustainable growth over a period of time, Reuters reported.  

The final HSBC manufacturing PMI is scheduled to be published on May 2, a day after the publication of official PMI.

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