China’s Economy Slips from Expansion into Contraction in March

Published on Author whelihans15

The HSBC purchasing managers’ index was 49.6 in March, down from 50.7 in February, marking a transition from commercial activity to contraction in China. Compared to the country’s official figures from the National Bureau of Statistics, the slide between February and March was only from 50.1 to 49.9, but still places the world’s second largest economy in contraction due to a weak property market weighing on domestic demand. Consequently, Beijing will likely have to ease policies in order to avoid a sharper slowdown.  Despite two interest rate cuts since November, a reduction in banks’ reserve requirements, and repeated attempts by the central bank to reduce financing costs, the economy has lost momentum. Wary of Japan’s current stifled economic growth due to two decades of falling prices, Central Bank Governor Zhou Xiaochuan warned that the country must be more vigilant about the impact of falling prices. China’s economic growth is expected to slow even more in the next few months amid deflationary pressures and soft demand, the government is expected to start easing policies significantly in the second quarter.

Source: http://www.reuters.com/article/2015/04/01/us-china-economy-pmi-official-idUSKBN0MS31320150401.

3 Responses to China’s Economy Slips from Expansion into Contraction in March

  1. The PMI focuses on manufacturing (and perhaps construction). As the economy becomes more service oriented, that matters less in and of itself and more as an indicator — and Mr. Miller indicated that the sample is too small and dominated by older, larger firms so is not representative even of manufacturing. For example, with the PMI is just a bit below neutral, 1-2 sectors could be what are driving the numbers.

    But does the economy need stimulus? Isn’t slower growth desirable??

  2. I wouldn’t say that the economy needs stimulus, as their economy is merely slowing down, not tanking. And the slowing down of China’s economy was inevitable. One would think that fast-paced growth would be preferred. Nonetheless, it will be interesting to see how much the economy slows.

  3. There is also conflicting data on this topic, as other reports showed an increase in the manufacturing PMI from 49.9 to 50.1, indicating a turn from slowdown to expansion. The service sector was also reported to be at 53.7. Which is actually the case is hard to know because of the data manipulation/misreporting that goes on in China.