China’s economy likely to face headwinds in the months ahead as suggested by declining PPI inflation, says Scotiabank

Moderating PPI inflation has spurred concern for China’s economic activity that is likely to face headwinds in the months ahead. The nation has intensified crackdown on financial leverage and tightened housing mortgage rules, Scotiabank reported.

China’s private manufacturing PMI dropped below the 50 point threshold mark in May from 50.3 a month ago. In addition, even though the official manufacturing PMI remained steady at 51.2 in May, a sliding New Orders sub-index has started to drag down the Output sub-index. It cast a shadow on China’s growth outlook.

China's PPI rose 5.5 in May from a year earlier, compared with an expected gain of 5.6 percent and slower than the 6.4 percent increase in April. The nation’s factory gate inflation slowed for the third consecutive month on falling commodity prices.

"We believe the central bank will step in if necessary to keep market liquidity at a level that is "neither too tight nor too loose" when approaching the half-year end," the report added.