China's Feb HSBC flash PMI retreats from 2-year high

Feb 25 2013, 09:10 IST
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Growth in China's giant manufacturing sector in February pulled back from two-year highs. (Reuters) Growth in China's giant manufacturing sector in February pulled back from two-year highs. (Reuters)
SummaryThe HSBC flash purchasing managers' index (PMI) for February slipped to 50.4, the lowest in four months.

Growth in China's giant manufacturing sector in February pulled back from two-year highs despite racking up a fourth consecutive month of expansion, a private survey showed on Monday, as foreign demand remained unsteady.

The HSBC flash purchasing managers' index (PMI) for February slipped to 50.4, the lowest in four months and down from January's final reading of 52.3, which had been the best showing since January 2011.

The flash PMI is the earliest indicator of China's economic health in any month and should not alter expectations that the world's No. 2 economy is enjoying a gentle recovery, a welcome development for the country's new leaders who take office in March.

"The underlying strength of the Chinese growth recovery remains intact, as indicated by still expanding employment and the recent pick-up of credit growth," said Qu Hongbin, an economist at HSBC.

In line with recent trends, the flash PMI showed demand for Chinese exports teetered in February. The new export orders sub-index inched down to 49.8, a hair's breadth from the 50-point mark separating expanding activity from contraction on a monthly basis.

China's export sector has been an Achilles' heel for its economy in the past two years as faltering global economic growth saw net exports drag on growth.

Although export growth surged to 21-month highs in January in a sign that business is picking up, most economists believe exporters face continued difficulty as U.S. and European demand continues to languish.

Still, the flash PMI did not suggest China's factories were re-entering a slowdown. While most PMI sub-indices fell in February, they were pulling back from multi-month highs, suggesting manufacturers were only taking a breather.

Some economists may attribute the dip in February's flash PMI to the Lunar New Year holiday that began on Feb. 10 this year and which fell in January last year, although the survey's publisher, Markit, says the data is seasonally adjusted to account for distortions from holidays.

The output sub-index fell from 22-month highs, new orders backed away from 20-month highs, factory employment edged down from its highest in 20 months, input prices cooled from a 16-month peak, and output prices fell from a 14-month high.

DOMESTIC DEMAND STEADY

As in previous months, February's survey showed domestic demand held up better than that from abroad. The new orders sub-index remained comfortably above 50 even after falling from January.

China holds its annual full-session parliament meeting on March 5 when incoming President Xi Jinping officially takes the reins of

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