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Elliot Clarke, Research Analyst at Westpac, notes that China’s official manufacturing PMI remained in an uptrend in May, rising from 51.4 in April to 51.9 currently.

Key Quotes

“May is the strongest outcome since September 2017 (52.4), and before that July 2011 (52.2). Coming as many major nations see their PMIs turn lower, this is a very pleasing result.”

“Support for the sector came from both the domestic economy and external demand, as both series lifted to be in line with their historic averages (back to January 2005). If developed world demand throttles back through 2018 as we anticipate (led by Europe), then the strength of domestic demand will be key in sustaining growth in the manufacturing sector from mid-2018 on.”

“On that point, so far in 2018, fixed asset investment growth has continued to rise off the lows of 2017. For the residential sector, with speculation reined in, a further material acceleration is unlikely, but continued solid gains can be expected. For business investment, authorities’ preference to develop new long-term growth opportunities at the expense of growth in established ‘big industry’ will initially curb total growth as the old guard makes way for the new.”

“With the investment backdrop to remain subdued and consumption growth unlikely to accelerate, total GDP growth will slow through the year. We continue to forecast year-average growth of 6.3% in 2018 and 6.1% for 2019 -a clear step down from 2017’s 6.9%.”