China: Economic outlook deteriorates further – UOB

Economist at UOB Group Ho Woei Chen, CFA, assesses the latest PMI results in the Chinese economy.

Key Takeaways

“China’s official manufacturing Purchasing Manager’s Indexes (PMI) stayed in contraction for the second straight month as the reading fell to 49.2 in October from 49.6 in September. This is below Bloomberg’s consensus estimate of 49.7 and the lowest reading since the early period of the pandemic in February 2020. Supply-side constraints such as energy crunch, higher commodity prices and supply chain disruption have dampened outlook despite resilient global demand which would likely receive further lift due to seasonal factors.”

“The official non-manufacturing PMI remained in expansion (above 50) but also fell by a larger than expected pace in October, down 0.8 points to 52.4 from 53.2 in September (Bloomberg est: 53.0).”

“We retain our forecast for China’s 4Q21 GDP growth to slow further to 3.5% y/y from 4.9% y/y in 3Q21 for full-year 2021 growth at 7.9%. Risks continue to stem from electricity shortages affecting industrial production, supply bottlenecks, tighter COVID-19 restrictions and a softer real estate market. Conversely, expectation of some easing in the government’s regulatory crackdown, policy support as well as measures to maintain stability of energy supplies in the winter months amidst the growth slowdown may help to lift sentiment.”