Explainer | China’s economic recovery ‘may be short-lived’: 4 takeaways from February’s manufacturing, services data
- Official manufacturing purchasing managers’ index (PMI) fell in February, but the Caixin/S&P Global gauge for factory activity edged up
- And while official non-manufacturing PMI rose in February, the Caixin/S&P Global gauge edged down last month
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1. Factory activity remains largely unchanged
The new-orders subindex remained unchanged at 49, while the new-export-orders subindex stood at 46.3, compared to 47.2 in January.
Meanwhile, in contrast to the official gauge, the Caixin/S&P Global manufacturing PMI edged up to 50.9 from 50.8 in January.
China’s manufacturing activity falls for fifth consecutive month in February
“We saw conflicting signals in the manufacturing gauges, with the [official] PMI showing a slightly faster decline, owing to weaker export orders, but the Caixin manufacturing PMI gauge showed the opposite,” HSBC analysts said.
“We think uncertainty in the global-demand picture may stay for some time, which means a stronger domestic-demand recovery is needed to offset this.”
And analysts at Capital Economics said that, averaging across both manufacturing PMIs to gauge conditions in industry, “the headline manufacturing reading remained unchanged at 50 and is in line with factory activity remaining largely unchanged last month”.
2. Services PMIs more encouraging
China’s non-manufacturing PMI, which measures business sentiment in the services and construction sectors, climbed to 51.4 from 50.7 in January.
Within the non-manufacturing PMI, the services gauge accelerated to 51 in February from 50.1 in January, with HSBC analysts pointing to more services and travel demand during the Lunar New Year holiday.
The construction-activity subindex remained in healthy expansionary territory at 53.5 despite the pace of expansion moderating from a reading of 53.9 in January.
“The recent boost to infrastructure spending from fiscal stimulus seems to have diminished somewhat, as indicated by a continued drop in the official construction PMI. But the services PMIs were more encouraging,” Capital Economics analysts said.
Taken together, the average of the two services PMIs increased from 51.4 to a seven-month high of 51.8, they added.
3. Composite PMIs hold steady
China’s official composite PMI, which includes both manufacturing and services, remained unchanged at 50.9 in February, indicating a slight expansion of production and business activities.
Meanwhile, the Caixin/S&P Global composite-output index remained unchanged from January’s reading at 52.5 in February, signalling an expansion of overall Chinese business activity for the fourth straight month.
The good news is that the hard data outperformed the PMIs during the final months of 2023
“All told, the average of the official and Caixin composite PMIs held steady at its seven-month high of 51.7. It is still depressed compared with pre-pandemic levels, but the good news is that the hard data outperformed the PMIs during the final months of 2023,” Capital Economics analysts said.
4. Will recovery be short-lived?
Analysts at Capital Economics expected a modest recovery in China’s growth momentum thanks to policy support, although they said the rebound appeared fragile and may not last once policy support is scaled back.
“The PMIs are consistent with activity holding steady in February, at least on paper. Although the survey readings remain below historical averages, this is likely distorted by sentiment effects – survey-based measures have underperformed the hard data recently,” they said.
“We expect a near-term pickup in the economy thanks to policy support, although this recovery may be short-lived due to the economy’s structural issues.”
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Analysts at Nomura expected the official manufacturing PMI to remain well below 50 in March as it is “showing few signs of improvement”.
They also said the services PMI could retreat markedly after February, as high-frequency mobility data after the Lunar New Year holiday suggested pent-up demand had quickly faded.
