China’s manufacturing PMI index falls in October, indicates economic slowdown and deflation risk

Chinese PMI data released today shows an evident deceleration of the economic activity. The headline manufacturing PMI index dropped to 50.8 in October from September’s 52.3. The PMI for the steel industry also dropped in the month by 2.9 points to 41.3. The sluggishness cannot be just linked to the government’s environmental curbs in the run-up to the 70th anniversary celebrations of the founding of the Republic.

The new orders sub-index of the nonmanufacturing PMI also shrank to 49.4, the first time since May 2016. This highlights a deceleration in the economy beyond the National Day celebrations in October, noted ANZ in a research report.

The U.S.-China trade talks’ progress is no longer a cyclical driver of the growth momentum of China’s economy, as the domestic economy dominates the outlook. The PMIs for large and small-sized companies in China dropped to 49.9 and 47.9, respectively, in October from 50.8 and 48.8 in the prior month. For mediumsized enterprises, the PMI index rose a bit by 0.4 points. The overall domestic growth momentum continues to be sluggish.

Moreover, the latest PMI print also hints at the risk of a deflation, as seen in the downward price pressures in both the manufacturing and services sectors. The output price of factories dropped to 48 from September’s 49.9.

“As such, the producer price index (PPI) for October (data release on 9 November) will likely have contracted further, in our view. In addition, we would like to highlight sales prices in China’s services sector, which declined to 48.9 in October from 50 in September, signalling deflationary risks”, added ANZ.