Global Daily – China’s economy slowing in Q1
China Macro: January PMIs confirm near-term weakness – Over the past few days, both China’s official PMIs and Caixin’s manufacturing PMI came in weaker than expected, while remaining in expansion territory. The ‘official’ manufacturing PMI published by NBS fell to a five-month low of 51.3 (December: 51.9, consensus: 51.6). Its equivalent published by Caixin dropped to a seven month low of 51.5 (December: 53.0, consensus: 52.6).
Meanwhile, the ‘official’ non-manufacturing PMI dropped by 3.3 points to a ten month low of 52.4 (December: 55.7, consensus: 55.0). As a result, the NBS composite PMI dropped to a post-covid-19 shock low of 52.8 (December: 55.1). Caixin’s services and composite PMIs will be published coming Wednesday.
This overall deterioration in China’s PMIs fits our base line scenario of weak quarterly growth in Q1-21. This weakness is partly driven by the impact of new regional lockdowns and tighter mobility restrictions that will weigh on travelling and consumption, particularly around the Lunar New Year period. Other factors explaining this near-term weakness are the projected decline in the contribution from net exports and the turn in the policy cycle. That said, in annual terms we still expect bumper growth in Q1-21, but that mainly reflects the low base: the extremely weak first quarter of 2020, when lockdowns and nationwide safety restrictions triggered an historic GDP contraction by -6.8% yoy. For more background see our China Outlook 2021, Our ten questions for the Year of the Ox published recently.
Asia Macro: Struggling, but emerging – The full range of EM Asian manufacturing PMIs published today point to divergence. They climbed further to high levels in Taiwan (60.2) and India (57.7), and are also above the neutral 50 mark in South Korea, Indonesia and Vietnam (next to China). By contrast, the latest manufacturing PMIs for Malaysia and Hong Kong (December) are still below the neutral mark. Going forward, in line with the China/Asia driven recovery of global trade and the return of portfolio inflows into the region – and with the support of previous fiscal and monetary easing – we expect the recovery of real GDP growth in EM Asia that set in from Q3-20 to extend into 2021. The roll-out of vaccinations in the course of this year should reduce the near-term drag stemming from virus flare-ups, new mutations and a re-tightening of mobility restrictions. All in all, we expect regional growth to accelerate to an ‘above trend’ pace of around 7.5% in 2021, with India (+9.5% in FY 2021-22) and China (+8.5% in 2021) as key outperformers. Still, while emerging Asia’s growth outperformance continues this year, we expect real GDP to stand almost 5% lower by end 2021 compared to our pre-corona base case. For more background see our Asia Outlook 2021, Luctor et Emergo, published earlier today. (Arjen van Dijkhuizen)