How Near To The Bottom?

The long-awaited sign that China’s economic slowdown has finally bottomed out, or just another step towards that trough? HSBC’s Flash China manufacturing purchasing managers’ index (PMI) stabilised in September, ticking up to 47.8 from its nine-month low in August of 47.6. There was also a broad steadying across the sub-indexes, though the one that measures output fell to its lowest level in 10 months.

The numbers are still on the contraction side of the 50 mark that separates contraction from expansion. The overall index shows that new business remains sluggish and the running down of inventories is taking longer than might have been expected. Stimulus measures – tax and interest rate cuts, expanded bank lending and liquidity injections and a green light for bringing forward $150 billion in infrastructure investment — may be taking effect, but gradually.

Inflation showed signs of reviving in August, after hitting a 30-month low in July. Policy makers will be wary of taking further stimulative measures unless they absolutely have to. HSBC’s Flash PMI lets them hold fire for another month.

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