China: PMIs surprised to the downside – UOB

UOB Group’s Economist Ho Woei Chen, CFA, reviews the latest results from Chinese PMIs.

Key Takeaways

“The PMIs released by CFLP (China Federation of Logistics & Purchasing) showed a second consecutive month of contraction in the manufacturing sector while non-manufacturing outlook also moderated in Aug.”

“With 1 ½ months to China’s 20th Party Congress on 16 Oct, COVID curbs are expected to be tightened and thus increasing risks to business and supply chains disruption. High sustained global inflation driving more aggressive monetary policy tightening and weaker global demand as well as further slide in the Chinese property market and geopolitical tensions are also weighing down the recovery outlook for China. The support measures targeting infrastructure spending and improving credit demand are unlikely to negate the downside factors.”

“As such, China’s growth forecasts are poised for further downgrade as hopes for a turnaround in the coming months fade. We thus revise down our 2022 GDP growth forecast for China to 3.3% from 4.1% with 3Q22 at 3.4% y/y and 4Q22 at 4.5% y/y. Our forecast for 2023 will also be adjusted lower to 4.8% from 5.0%, taking into account of the increasing external risks next year.”