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What to expect from China’s PMI next week?

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Nov 27, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    FXStreet (Mumbai) - Chinese growth dipped to 6.9 per cent in the third quarter. All indicators so far have pointed towards a slowdown of the economy. Growth is likely to resume a downtrend in 2016 on structural headwinds. Chinese authorities estimated annual average economic growth to be around 6.5% between 2016 and 2020, far less than the 9 per cent GDP growth it had recorded back in 2009 when the developed economies of the world was struggling with financial crisis.

    The slew of data released in October followed a trend that highlighted China’s gradual transition to a consumer-led growth model. October saw an improvement in retail sales figures. The government’s non-manufacturing PMI report that focused largely on the nation’s services sector, held in expansionary territory at 53.1 in October, while the manufacturing PMI gauge held in contractionary territory.

    Official data showed China's October factory output growth fell for the third month in a row hitting a 7-month low. Fall in factory activity raises fears of faster than expected cooling of the economy. Investment expansion also slipped to its weakest pace since 2000.

    As we wait for the official PMI factory numbers and the official services PMI numbers to be released on Ist December, it may be worthwhile to have a look at what the figures might stand at.

    PMI expectation

    A Reuters poll showed activity in China's manufacturing sector likely shrank for a fourth straight month in November. As per the median forecast of 23 economists in a Reuters poll, the official manufacturing Purchasing Managers' Index (PMI) can be expected to have remained unchanged in November at 49.8. Given that a below 50 reading signifies a contraction in activity, the expected PMI brings to focus once again the sluggishness of the economy.

    Worse still, most do not see any recovery momentum in short term due to anemic domestic as well as external demand.

    China's Premier is confident growth momentum will pick up

    October’s data revealed that China’s growth has failed to pick up despite several stimulus measures adopted by the central bank. The PBoC cut interest rates six times since November 2015.

    Some analysts have hinted at the possibility that China's economy will bottom out in the final quarter as the stimulus measures begin to show results. However this is not the outlook that the majority endorse.

    Maintaining that the economy is currently going through adjustments to register a reasonable medium- to long-term growth, China's Premier Li Keqiang seemed optimistic of China being on track to reach its growth target of about 7 per cent by the ear end.
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