According to Garrett Knight, any lingering doubts over the scale of the slowdown in China’s economy has evaporated after official data showed the country’s vast manufacturing sector contracted at the fastest pace in 6½ years in August.
The Caixin/Markit China Manufacturing Purchasing Managers' Index came in at 47.1 in August, notably below a poll median forecast of 47.7 and significantly lower than July's final 47.8. A number below 50 indicates contraction.
The data added to fears that the slowdown in the world’s second biggest economy may be accelerating at a pace much greater than the Chinese authorities had expected.
Garrett Knight’s Sean Mannion, who leads Asia Pacific markets strategy at the investment house explained, “The slowdown has gathered pace and nothing short of all-out fiscal stimulus is going to arrest the decline. The authorities have done a reasonable job of trying to rebalance the economy to place greater emphasis on domestic consumption but the manufacturing sector is still the biggest driver of growth in the country. Sluggish demand for China’s goods around the world automatically translates to poor factory activity.”
The news came a week after China devalued its currency, the yuan, against the US dollar to which it maintains a tightly-controlled rate of exchange and while it is not being viewed as a competitive devaluation, it is being regarded as indicative of how the Chinese authorities view the prospects for the economy.
“They wouldn’t have devalued if they saw a meaningful bounce on the immediate horizon,” said Mannion. Garrett Knight says it expects new stimulus measures from the Chinese leadership aimed at slowing the pace of decline but cautions that the country may fail to reach its economic growth target of 7% this year.
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