Economy

China Manufacturing Sector Contracts For Fourth Month

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China's factory activity shrank for a fourth consecutive month in February, as weak domestic demand as well as external weakness added downside risks to growth, a survey by Markit Economics revealed Wednesday.

The rate of contraction in the manufacturing activity, however, eased with the HSBC flash manufacturing purchasing managers' index rising to a four-month high of 49.7 in February from 48.8 in January. Nevertheless, with the reading being below 50, the sector is experiencing contraction.

The manufacturing output index was also at a four-month high of 50.1, bouncing back from 47.6 in January.

While output remained broadly unchanged, new orders continued to contract. New export orders shrank in February following an improvement in the previous month.

Growth remains on track of slowdown, despite the marginal improvement in the headline flash PMI led by quickened production after the Chinese New Year, HSBC chief economist Hongbin Qu said.

"With a meaningful rebound of domestic demand not in sight, external weakness is starting to bite, adding more downside risks to growth," the economist said, adding the People's Bank of China after delivering this year's first RRR cut, should step up policy easing as inflation pressures continue to ease.

Input prices remained unchanged during the month, while output prices continued to fall, albeit at a moderate pace, according to the survey.

Last week, the People's Bank of China decided to cut the banks' reserve requirement rate by 50 basis points for the second time in three months to boost lending amid sluggish economic growth.

The new CRR at 20.5 percent for large commercial banks will be effective from February 24. The Chinese economy expanded 8.9 percent in the fourth quarter of 2011, the slowest pace in more than two years, as a result of sluggish external demand and Beijing's past policy tightening to contain inflation and property prices.

Despite the slowdown in growth, the central bank refrained from an interest rate reduction. According to the latest official data, inflation accelerated for the first time in six months in January, triggered by higher spending during the Lunar new years holidays.

Inflation rose to a three-month high of 4.5 percent year-on-year in January from the 4.1 percent in the previous month. (Provided by RTTNews)

Australia Westpac Leading Index Signals Sub-Par Growth

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An indicator of Australian economic activity pointed to sub-par growth for the economy for the three to nine months into the future, while at the same time brushing aside concerns about a sharp slowdown.

The annualized growth rate of Westpac-Melbourne Institute's leading index was 2.3 percent in December 2011, below its long term trend of 3 percent, a report showed on Wednesday. The index rose to 283.4 from 282.1 in November.

The annualized growth rate of the coincident index which measures the current economic activity was 2.5 percent, also below its long term trend of 3 percent. The index rose to 270.6 from 270.4.

Despite a slight up-tick in December, the growth rate in the leading index remained relatively subdued after dropping back sharply from a 4.6 percent increase in August. "The Index is pointing to sub-par growth rather than a more pronounced weakening," the report said.

The growth in the index is still well above the extreme lows seen in 2008 and in the early-90s recession, and the levels seen in midcycle slowdowns in 2000-01 and the mid-90s, according to the report.

Separately, the Conference Board said that its leading economic index for Australia continued to fluctuate around an upward trend through December, although the six-month growth rate of the leading economic index has moderated in recent months.

The index increased slightly in December following a decline in November. Large gains in money supply, and the sales to inventory ratio more than offset the negative contribution by the yield spread.

With the gain in December, the leading economic index increased 2.1 percent over the second half of 2011, faster than the 1.6 percent increase during the first half of the year.

The coincident index, a measure of current economic activity, was unchanged in December. The coincident economic index increased 1 percent between June and December 2011, up from 0.2 percent over the first half.

"Taken together, the recent behavior of the composite indexes suggests that the economy is likely to grow at a more moderate pace in the near term, despite solid economic activity in 2011," the Conference Board said.

Earlier this month, the Reserve Bank of Australia trimmed its growth forecast for the year ending 2012 to 3 percent from its previous prediction of 4 percent. Minutes of the central bank's February meeting revealed yesterday that the policymakers see scope for further policy easing if domestic demand weakens.

The RBA left its benchmark cash rate unchanged at 4.25 percent this month. That followed two consecutive rate cuts towards the end of 2011 to support the economy amid global slowdown. (Provided by RTTNews)

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