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HSBC's PMI for May drops to 8-month low

(Shanghai Daily)

09:31, June 04, 2013

Manufacturing activity at private and export-oriented companies in China fell for the first time in seven months and HSBC's final figure for May Purchasing Managers' Index was worse than its flash estimate.

The PMI fell to 49.2, an eight-month low, and the final reading worsened from the preliminary flash index of 49.6, which was released two weeks ago. May's figure also fell from 50.4 in April.

A reading below 50 means contraction.

Qu Hongbin, chief economist for China at HSBC, said the latest PMI reading suggests a marginal weakening of manufacturing activities toward the end of May because of domestic demand deteriorated.

"With persisting external headwinds, China needs to boost domestic demand to avoid a further deceleration of manufacturing output growth and its negative impact on the labor market," Qu said in a note.

The component indices showed that both new orders and new export orders declined, while output expanded at the weakest pace in seven months.

In contrast with the HSBC PMI, the official government PMI, which is compiled by the China Federation of Logistics and Purchasing and mainly tracks state-owned enterprises, grew to 50.8 in May from 50.6 in April.

Zhou Hao, an economist at Australia & New Zealand Banking Group Ltd, said the "inconsistent" data will continue to complicate China's economic policymaking and potentially impair the judgment of policymakers.

"The official PMI reading is better than expected," Zhou said. "But its impact may be short-lived. It does not change our view of China's overall softening economic conditions."

China's economy grew 7.7 percent from a year earlier in the first quarter, missing market estimates and below 7.9 percent in the final quarter of 2012.

Zhang Zhiwei, an economist at Nomura, is cautious over China's economic outlook and predicted a 7.5 percent growth in the second quarter.

The International Monetary Fund last week cut China's economic growth to 7.75 percent this year, down from 8 percent previously. The World Bank last month cut its forecast of China's growth this year to 8.3 percent from 8.4 percent.

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