China: has the manufacturing sector hit the bottom?
Chinese growth has slowed over the last 18 months: GDP expanded by 6% year-on-year in the third quarter of 2019, down from 6.6% in 2018. The economy should grow by 6.2% this year according to official measures – within the government’s 6%-6.5% target – but may dip below 6% next year. But alternative sources suggest that underlying growth this year has been closer to 4%-4.5%. Trade tensions will continue to create headwinds in 2020, although targeted government stimulus could help offset this. The manufacturing sector has particularly suffered this year but may have bottomed out: in November, the official National Bureau of Statistics PMI moved above 50 for the first time since April, while the Markit/Caixin measure rose to 51.8, the highest since the end of 2016. This should be reflected in industrial-production growth, which is expected to rise from 4.7% to 5% in November. Meanwhile, fixed-asset investment should grow by 5.2%, boosted by policy support for infrastructure investment. Retail-sales growth should rise from 7.2% to 7.5%, although a weak labour market and high inflation should prevent a more sustained rebound.