More Stimulus Seen as China December Flash PMI Contracts

Activity in China’s factory sector contracted in December for the first time in seven months as new orders declined, a preliminary private survey showed on Tuesday, fuelling expectations that more stimulus will be needed to avert a sharper economic slowdown.  The flash HSBC/Markit manufacturing purchasing managers’ index(PMI) fell to 49.5 in December from November’s final reading of 50.0 and below the 50.0 reading forecast by analysts.

A reading below 50 indicates contraction, while one above 50 points to expansion on a monthly basis.  The gloomy report will reinforce investors’ fears that the world’s second-largest economy is losing momentum, and add to bets that more strong stimulus measures are on the cards after the central bank unexpectedly cut interest rates last month.

“The manufacturing slowdown continues in December and points to a weak ending for 2014,” said Hongbin Qu, chief economist for China at HSBC.  “The rising disinflationary pressures, which fundamentally reflect weak demand, warrant further monetary easing in the coming months.”


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