- Huw McKay, a senior international economist at Westpac
Growth in Chinese manufacturing activity slowed in August, losing steam for the first time in six months after reaching the highest level in over two years. The slowdown was driven by falling foreign and domestic demand, provoking speculation that further monetary policy easing will be required to ensure that the world second largest economy will not stumble once more. HSBC's final August Manufacturing PMI came in at 50.2, only slightly above the 50-point mark, which separates expansion from contraction. The official survey showed declines across output, employment, new orders, delivery time and raw material inventory, while the private version highlighted subdued demand.
China's economic growth accelerated to 7.5% in the three months through June 30 compared to the previous quarter's 7.4%. However, the growth was supported by increasing government spending on building railways and other public works. Economists believe that without further government support, growth is likely to lose momentum. Chinese authorities have since April embarked on a series of measures to support growth, including tax breaks for small enterprises, targeted infrastructure outlays and incentives to encourage lending in rural areas and to small companies. China in March set its annual growth target for this year at about 7.5%, unchanged as last year.
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