Chart of the month: Manufacturing woes for China continue

This month’s ‘Chart of the Month’ briefing serves to highlight the continued weakness in China’s manufacturing sector, with the most recent data coming in worse than anticipated.

The Caixin/Markit manufacturing purchasing managers’ index (PMI) for China fell to 48.2 in December, a deterioration of 0.4 points on November’s figure, and significantly below an expected figure of 49.0 (Reuters poll forecast). Manufacturing PMI measures the level of output of a country’s manufacturing sector, based on a number of factors including new orders, output, employment, suppliers’ delivery times and the stock of items purchased. An index value of above 50 indicates expansion in the manufacturing sector, while an index value of below 50 signals contraction. December’s decline marked the 10th consecutive month of worsening operating conditions for the sector.

In fact, the news was a contributing factor behind trading on China’s stock markets being suspended, following the introduction of a so-called ‘circuit-breaker’ system in December. Coming into effect for the first time today, moves of 7% (in this case a decline) from the previous session’s closing figure prompt a trading suspension for the day.

Looking at an alternative manufacturing measure does not make for decent reading either. The OECD’s industrial production index for China, which measures the monthly physical volume of goods produced by the manufacturing, mining and utilities sectors, paints a picture of steady deceleration. Year-on-year growth has contracted from approximately 10% in mid-2013 to rates approaching 5% towards the end of 2015.

Given the ongoing slowdown, one thing the world will be watching for over the course of 2016 is whether China decides to devalue its currency to spark economic growth. If it does, the move could trigger devaluations elsewhere (so-called ‘currency wars’) and give the Federal Reserve pause for thought over its planned interest rate hikes in the year.

Note: Graphs and figures are taken from Ti’s Dashboard. To find out more about this product or to purchase a 12 month subscription (priced £795) please follow the link provided-