China manufacturing PMI to rebound further in April on recent recovery in economic activities

Given China’s recent recovery in economic activities, the country’s Caixin manufacturing PMI is likely to further rebound in April, according to ANZ. In the first quarter, the economic growth of China continued to be strong and posted 6.7% growth, down by just 0.1ppt from Q4 2015. Economic indicators of March also showed that real activities bottomed out last month. China’s industrial output grew 6.8% y/y in March, as compared with 5.4% growth registered in February. The country also recorded positive growth in industrial profit in January-February and is expected to have grown positively again in March, noted ANZ.

Meanwhile, the official manufacturing PMI shows strong seasonality in the past, particularly in the year’s first four months. March’s strong recovery by 1.2 points to 50.2 was in line with past patterns. The average PMI of China has declined by 0.1 points from March to April in the past five years. Hence, the PMI is likely to be in the expansionary territory in April, said ANZ.

If China’s PMI comes in above 50, it will strengthen the view that the easing of policy by the Chinese central bank will be less aggressive in the near term, added ANZ. Even if the PBoC is expected to maintain a low market interest rate, it will use conventional policy tools less frequently. In the near term, the central bank is expected to make use of short-term liquidity tools such as Medium-term Lending Facility, Standing Lending Facility and reverse repo, noted ANZ.