Activity in China’s mammoth factory sector edged up to a four-month high in February but export orders shrank at their fastest rate in 20 months, a private survey showed, painting a murky outlook that argues for more policy support. The flash HSBC/Markit Purchasing Managers’ Index (PMI) inched up to 50.1 in February, a whisker above the 50-point level that separates growth in activity from a contraction on a monthly basis.
Economists polled by Reuters had forecast a reading of 49.5, little changed from January’s final PMI of 49.7. But even as factory activity grew marginally, the survey suggested that manufacturers still faced considerable risks from weak foreign demand and deepening deflationary pressures.
While domestic demand picked up slightly, the new export orders sub-index shed three hefty points from January to skid to 47.1, the sharpest rate of contraction since June 2013. “Domestic economic activity is likely to remain sluggish and external demand looks uncertain,” said Qu Hongbin, HSBC’s chief economist in China. “We believe more policy easing is still warranted at the current stage to support growth.”