China: PMIs suggest a silver lining in weak growth – Commerzbank

Tommy Wu, Senior Economist at Commerzbank, offers a brief analysis of the official Chinese PMIs released this Thursday, which showed that the business activity in the manufacturing sector rebounded a bit in August, albeit remained in contraction territory for the fifth straight month. Furthermore, the growth in the non-manufacturing sector eased more than anticipated and did little to ease concerns about the worsening economic conditions in China.

Key Quotes:

“While today’s official PMIs suggest China’s 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 likely driven by domestic demand as new export orders have remained very weak at 46.7 in August.”

“Services, which have been key to China’s post-pandemic recovery, lost further steam. It was dragged by the services component which fell to 50.5 from 51.5 previously. However, the construction component picked up notably to 53.8 from 51.2 prior. This likely reflects stronger infrastructure investment as the government has put greater efforts in supporting growth, albeit in a targeted manner.”

“The weak labor market outlook does not bode well for the economic recovery. The employment component for both manufacturing and non-manufacturing remained visibly below the 50-neutral mark at 48.0 and 46.8, respectively.”