China’s Weak PMI Goes Beyond Lunar New Year

The contraction in China’s official PMI reading has been largely blamed on the Chinese New Year holiday break, but some analysts argue that the dip is still reflective of slowing growth in the world’s number two economy.

China’s official manufacturing purchasing managers’ index fell to 50.5 in January, down from 51.0 in December data released Saturday showed. The dip in the official PMI followed a decline in China’s final HSBC PMI index last week to 49.5 in January from 50.5 in December, the first drop below 50 – the level that separates contraction from expansion – since August.

Traditionally, China’s January PMI reading is distorted by the Lunar New Year holiday as people take seven days off of work and many businesses and factories shut down. But some analysts said they weren’t convinced the dip could be entirely blamed on the holiday lull.

“We think that some part of the weakness was due to the Chinese New Year holiday. However, together with the [final] Markit/HSBC reading, it is getting clearer that the economic slowdown has begun again,” read a note from Societe Generale’s China economists.

China’s gross domestic product (GDP) expanded at a rate of 7.7 percent last year, its slowest rate since 1999 and down from 7.8 percent growth in 2012, compounding views that world’s number two economy, which had enjoyed decades of double-digit growth, is slowing.

via CNBC

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