HSBC’s April 2013 Flash PMI For China At 2-Month Low

HSBC's flash PMI for China for the month of April 2013 has come down to 50.5 from 51.6 in March 2013, indicating further weakness in the economy. The country’s manufacturing output too declined to 51.1 from 53.0 in March 2013, which shows that the manufacturing sector is not yet out of the woods. The numbers underlines the IMF's earlier comments in which it cut the global growth forecast for 2013.

Though the data suggests that the Chinese economy has reversed trends over the last 2 months, what is a cause for concern is that there may not be a pick-up in the short term. The demand has remained quite slow over this 2-month period, which has resulted in increased inventory of the finished goods. Raw material inventories have declined, which indicates that finished products are not in demand. As a result, companies are manufacturing fewer products, in turn reducing the demand for raw materials. Eventually, this has led to a decline in both raw material and finished goods prices at a faster rate. From this, it may be surmised that inflation may ease further.

The PMI data also shows that the backlog of work has increased. This seems positive at the moment, as companies may have orders for a few more days. However, it could also mean that orders are not being executed due to weakness in the economy.

Adding insult to injury, export orders too have declined. China being an export oriented economy, a decline may not augur well for it.

All these factors have also impacted the labour market conditions. The flash PMI data indicates that employment has declined, in a reversal of what was seen in last month's PMI.

This is the second consecutive month in which the Chinese data has disappointed. Following this announcement, the Asian markets are trading in the red.