China’s PMI Index Up in October

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Oct. 25 – With a rating of 49.1 this month – up from 47.9 in September – China’s economy showed signs that it was making a recovery from its weakest growth in three years in HSBC’s October Flash Manufacturing Purchasing Managers Index (PMI) released on Wednesday. However, while the preliminary October reading represents a three-month high, it remains under the 50-point benchmark that separates expansion from contraction in business activities, marking the index’s 12th straight month below the growth line.

The index is the first key indicator of economic activity to be released since China announced last week that the economy grew at 7.4 percent in Q3 2012 – the seventh consecutive quarter of decreased growth and the lowest level since Q1 2009. But with recent improvements in exports, industrial production, and retail sales, experts at HSBC are predicting that this growth decline has bottomed out and is set for a gradual recovery.

According to HSBC Chief Economist Qu Hongbin, October’s flash PMI reading can be partly attributed to the gradual improvement in the new orders index – which has risen to a six-month high of 49.7 this month – as well as adjustments to the country’s fiscal policy.

“This is helped by the filtering through of the earlier easing measures,” said Qu, referring to China’s dual interest rate cuts and a loosening of restrictions on the reserve requirement ratio for banking institutions earlier this year, allowing banks to utilize more of their cash for activities such as new loans. Qu also mentioned that China is still susceptible to external pressures and pushed for a continuation of such supportive policies.

“External challenges still abound and pressures on the job market are lingering. This calls for a continuation of policy easing in the coming months to secure a firmer growth recovery,” he said.

It is clear, though, that this month’s PMI increase has alleviated some recent concern over the state of the world’s second-largest economy and posts a positive sign for the country’s recovery going forward.

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