The flash (preliminary) HSBC purchasing managers’ index (PMI) for April came in at a two-months high of 49.1, 0.8 points higher than the final reading for March and reversing a five-months decline. Any number below 50 signals contraction; above, expansion. So factory activity remains sluggish, but not as sluggish as in recent months.
The HSBC index is weighted towards export-dependent small- and medium-sized manufacturers, and usually shows a lower number than the official PMI, which better reflects the activity at large companies. The April number suggests that the increased bank lending that the central bank has allowed over the past month or so, even for small companies, is having some effect on moderating the slowdown in growth. The contraction in new orders is slowing and exports orders increase to a three-months high reflecting the modest recovery being seen in the U.S. Even though the latest PMI figure will helping to ease concerns of a sharp slowdown in growth, we expect the central bank to remain measured about further easing of both monetary and fiscal fronts.