China’s manufacturing PMI stays in expansionary territory, hints at easing of downside risk to growth in near term

China’s April manufacturing PMI fell slightly to 50.1 from March’s 50.2. As China’s PMI continues to be in the expansionary territory, it hints at easing of downside risk to economic growth in the near term, according to ANZ. The PMI figure was supported by production and new orders that remained at a high level of 52.2 and 51 respectively. The PMI augurs well for the economic data for April, which is due to be released in a couple of weeks.

Major enterprises support the decent PMI figure. This implies that fiscal intervention continues to be a vital driver of growth, noted ANZ. Meanwhile, service industries are likely to add more to the economic growth. However, the PMI’s first recovery in March has been a turnaround of economic sentiment towards China, strengthened by the strong Q1 economic growth, added ANZ.

Nonetheless, even if the rebound in PMI underpins market sentiment, there are worries regarding the steel sector, according to ANZ. The steel industry’s PMI surged by 7.6 points to 57.3 in April. This is the first expansionary figure in 19 months.

However, China’s central bank is expected to fine tune its policy to moderately accommodative given the rebounding economic sentiment, noted ANZ.

“We forecast that the central bank will only have one more cut of reserve requirement ratio in the rest of 2016, instead of three that was market consensus”, added ANZ.