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China PMI Not That Rosy, Rate Cut on the Cards: Nomura
CNBC.com | April 06, 2012 | 02:31 AM EDT

Markets may be taking the latest manufacturing data from China positively, but one economist warns that the data point to further weakness in the economy, which could prompt authorities cut interest rates despite signs of inflation creeping higher.

The official Purchasing Managers' Index (PMI) that highlights large factories jumped to an 11-month high of 53.1 in March, up from February's reading of 51. The figure reinforces views that China is not sliding towards a hard landing, prompting risk to return to markets. The Australian dollar advanced 0.8 percent to $1.0428, while the MSCI Asia Pacific increased 0.4 percent in Tokyo in early morning trading.

But Nomura's Chief China Economist Zhiwei Zhang cautions that the actual underlying story "may not be that strong."

"Keep in mind that, in March, the official PMI always rises 3 percentage points from its February level. It's a seasonal factor," Zhang told CNBC Monday. "Compared to the past, the official average PMI is about 56, whereas this month, it's only 53. It's still very much lower."

A separate private survey of smaller factories by HSBC released on Sunday also showed factory activity in China slowing further. The HSBC PMI, fell to 48.3 in March from February's 49.6, largely in line with a preliminary PMI reading of 48.1 released in March.

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