China: Economic recovery stays intact – UOB

Ho Woei Chen, CFA, Economist at UOB Group, assesses the latest PMI data in China.

Key Quotes

“Both the manufacturing and non-manufacturing Purchasing Manager’s Index (PMI) from China Federation of Logistics & Purchasing (CFLP) softened in December. The manufacturing PMI eased from more than 3-year high of 52.1 in November to 51.9 in December (Bloomberg poll: 52.0) while the non-manufacturing PMI fell to 55.7 in December (Bloomberg poll: 56.3) from 8 ½-year high of 56.4 in November.”

“The lower readings in December could have been partly due to the cold weather and reported cuts in electricity supplies to some industrial and commercial users as the system was unable to cope with the surge in demand. Nonetheless, the underlying economic recovery momentum in China likely remained intact given that COVID-19 is contained domestically, keeping pent-up demand strong in the coming months. For 4Q20, we are maintaining our GDP growth forecast for China at 6.2% y/y (3Q20: 4.9%) with our full-year 2020 GDP growth at 1.9% and rising to 8.2% in 2021.”

“The manufacturing PMI is now into its 10th consecutive month of expansion, defined as a reading above the threshold of 50. In December, the main components including production (54.2 from 54.7 in Nov), new orders (53.6 from 53.9 in Nov) and new export orders (51.3 from 51.5 in Nov) eased.”