China’s forecast chopped after sluggish output

CHINA’S manufacturing base showed signs of a further contraction in business activity during last month, adding weight to concerns that the world’s second-largest economy is still slowing down.

Markit and HSBC’s latest purchasing managers’ index (PMI) for China’s vast industrial sector came in at just 48.1 yesterday morning, 0.3 points lower than analysts expected. A PMI figure below 50 suggests that a part of the economy is contracting.

It is the fourth month in which manufacturers have reported falling activity, with a figure barely higher than March’s nine-month low.

“The manufacturing sector, and the broader economy as a whole, continues to lose momentum,” said Hongbin Qu, HSBC’s chief economist for China.

“Beijing has introduced more reform measures which could support growth by inducing more private sector investment. We think bolder actions will be required to ensure the economy regains its momentum.”

Poor indicators also prompted Swiss financial services giant UBS to snip the country’s GDP growth forecast yesterday. The group no longer expects the economy to reach the government’s growth forecast of 7.5 per cent this year.

Instead, growth is expected to be 7.3 per cent. If the forecast is correct, it would be the country’s slowest growth since the early 1990s.

Growth in 2015 will also suffer from the slowdown, according to the new projection, which suggests GDP will expand by 6.8 per cent in 2015. UBS also highlighted the Chinese property boom as a major risk to the economic health and financial stability of the country.

However, research by Capital Economics yesterday indicated that even if China went into a severe recession, the impact on the US economy would not be as large as some analysts fear. The authors noted that even an 80 per cent drop in America’s exports to the Chinese economy would reduce GDP by just 0.7 per cent.