Thursday, 31 May 2012

China official May PMI drops sharply to 50.4 from 53.3 in April

-- Currencies in Asia-Pacific region fall on weak data
-- Economists says economy will bottom out in the second quarter
BEIJING -- China's official Purchasing Managers Index fell significantly to 50.4 in May from April's 53.3, showing an accelerated slowdown in the world's second-largest economy that calls for more stimulus policies.
The gauge for nationwide manufacturing activity was also lower than the median forecast of 51.5 from 10 economists polled by Dow Jones Newswires. Nine out of the 10 economists predicted a higher PMI than the real figure.
A PMI reading above 50 indicates an expansion in manufacturing activity, while a reading below 50 indicates contraction.
After the weak data was announced, the Australian dollar fell to 0.9644 against the U.S dollar, its lowest level since Oct. 5, 2011. Other regional currencies including the New Zealand dollar and Singapore dollar were all lower because of the China PMI.
Due to weak overseas demand and domestic investment, China's economic growth will likely bottom out in the second quarter, before Beijing's supportive policies begin to take effect in the second half of the year, economists said.
"As risks of a hard landing have increased, Beijing should issue more policies to stabilize economic growth," said Li Huiyong, an economist at Shenyin & Wanguo Securities.
"The quicker interest rates are cut the better," he said.
Meanwhile, Standard Chartered economist Li Wei expressed some skepticism at the big drop in the PMI. The high April figure is suspect given that other data were weak across the board that month, and flawed seasonal adjustment methods may be the culprit, Li said.
"I think the slowdown is all being reflected in May, so I'm a little bit concerned about some over-correction in the data," he said.
Nonetheless, Li said there is no doubt underlying economic conditions are weak and economic data may not begin to reflect the stimulus until August or September.
-Liu Li and Aaron Back contributed to this article, Dow Jones Newswires; 8610-8400-7713;
(END) Dow Jones Newswires
May 31, 2012 21:35 ET (01:35 GMT)

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