- Qu Hongbin, HSBC's economist
Activity in China's manufacturing sector contracted for the first time since May, fuelling concerns about the resilience of the world's second biggest economy. The final HSBC/Markit Purchasing Managers' Index for December came in at 49.6, below the 50.0 threshold, which separates growth from contraction. The reading was slightly higher than a preliminary gauge of 49.5, but down from the final 50.0 in November. The weak performance will add to the debate over whether the Chinese government needs to deploy more stimulus measures to prevent a more precipitous economic slowdown or fast-track market reforms to boost demand, or both. China is headed for its slowest full-year economic growth since 1990. Many market participants expect Beijing to lower its annual growth target to 7% next year, from 7.5% in 2014. Last month the People's Bank of China lowered the interest rates for the first time in two years, and eased restrictions on mortgages in an attempt to boost demand for housing.
The slowdown was largely driven by weak domestic demand as new orders contracted for the first time since April 2014. Highlighting soft demand, output prices dropped for the fifth consecutive month. In contrast, new exports rose for the eighth straight month and at a slightly faster pace than in the preceding month, signalling buoyant foreign demand as US economy recovers.
© Dukascopy Bank SA