China: Solid Q1 growth momentum – Standard Chartered

China’s official manufacturing PMI rebounded sharply in March to 51.5 from 50.3 in February, reflecting a recovery in real activity after the Lunar New Year, notes the research team at Standard Chartered.

Key Quotes

“The production and new orders sub-indices edged up by 2.4ppt and 2.3ppt, respectively, in March, suggesting improved production activity on an increase in demand. The new export orders sub-index recovered above the 50 threshold, after falling into contraction territory for the previous two months, reflecting an external demand recovery. However, the average PMI readings in Q1-2018 appear to have been weaker than in Q4-2017, suggesting solid but softer growth momentum at the beginning of 2018.”

“We expect GDP growth to have moderated to 6.7% y/y in Q1 from 6.8% in Q4-2017. Robust external demand likely supported growth, although the increase in US-China trade friction may cast a shadow on future trade performance. The services sector likely remained resilient; the services PMI averaged 53.9 in Q1 and the official service production index grew 8.0% y/y in January-February.”

“We think CPI inflation eased on falling food prices, and PPI inflation may have fallen further partly on a high base. FX reserves likely rose to USD 3.155tn by end-March due to a favourable FX valuation effect.”