China: Economy has past the peak - BNPP

The research team at BNP Paribas explains that the latest PMI readings from China indicates that growth is stable for now, but they expect more softness down the line.

Key Quotes

“In China, the official manufacturing PMI stayed flat at 51.2 in May, beating the consensus forecast of 51.0. This was the 10th consecutive month that headline PMI stood above the breakeven 50.0. And the reading of 51.2 was the highest in May since 2012. On the negative side, the input price index slid for the fifth month in a row to 49.5 from 51.8 in April and the peak of 69.6 in December last year. As a good concurrent indicator of sequential PPI, we estimate the 49.5 print corresponds to a 0.4pp m/m decline in headline PPI in May (or 5.5% y/y), substantiating our view that PPI is set to drop progressively in the remainder of the year.”

“The PMI readings indicate growth is stable for now, but we expect more softness down the line. The ongoing financial deleveraging and property tightening inevitably will produce a negative impact on economic growth, with some lags. The reversal in industrial price momentum has ended restocking and prompted destocking. Nevertheless, downside risk to economic growth looks limited in the near term. As such, policymakers’ will remain focused on financial deleveraging and curbing property bubbles. The odds of policy loosening because of economic fundamentals are very low, in our view.”