China’s factory sector feeling the heat as it suffers to grow in the last 32 months

China’s factory sector feeling the heat as it suffers to grow in the last 32 months

The steep fall in the HSBC flash purchasing managers’ index (PMI) to 48 in November from 51 in October underscores Beijing’s growing alarm over the health of the global economy and unnerved financial markets already roiled by the euro zone debt crisis.

The data is likely to boost expectations Beijing may soon shift its policy focus from supporting selective parts of the economy to broader measures, such as reducing bank reserve requirements nationwide or providing fiscal stimulus.

"Worse is yet to come," said Conita Hung, head of equity research of Delta Asia Financial Group. "Companies involved in shipping, exports and even banking and finance will be affected."

The Australian dollar fell to a six-week low after the PMI report, on concern that demand growth from Australia’s biggest trading partner and export market will ease.

Oil prices also eased on demand worries.

U.S. S&P stock futures extended losses to more than 1 percent as the China data added to concerns about faltering global growth. A sharp downward revision to U.S. third-quarter growth figures on Tuesday had already put the market under pressure.

November’s flash PMI reading is the lowest since March 2009 and suggests the factory sector contracted during the month. A PMI reading of 50 demarcates expansion from contraction.

Qu Hongbin, an economist at HSBC, said the PMI data suggested industrial output growth in China, often referred to as the world’s factory floor, will slide. Output has averaged close to 14 percent this year.

"Industrial production growth is likely to slow further to 11-12 percent year-on-year in coming months as domestic demand cools and external demand is set to weaken," Qu said.

The output sub-index tumbled to a 32-month low of 46.7, a steep drop from October’s final reading of 51.4.

Factory inflation cooled sharply. The sub-indexes for input and output prices dropped around 10 points each to below 50 to lows last seen in April 2009.

New export orders held above 50 but overall new orders suffered the biggest drop in 1-1/2 years to sink well below the 50-point mark, suggesting factories received fewer orders on the whole in November even though orders from overseas held up.

The flash PMI is based on up to 90 percent of total responses to the monthly survey and is a snapshot of the final data.

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Posted by Hassan Ali on Nov 23 2011. Filed under Business. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry