China's May PMI contrasts markedly with IMF growth forecasts
Weak service sector activity and a contraction in manufacturing in May signalled that China's economy is in a period of uncertainty.
On May 31, China's economy became the focus. Following the better-than-expected release of the Caixin Private Sector Purchasing Managers' Index (PMI) for April, the PMI data from the National Bureau of Statistics (NBS) received significant attention.
In May, the NBS Manufacturing PMI fell from 50.4 to 49.5, while economists had expected the PMI to be 50.5. The NBS Non-Manufacturing PMI decreased from 51.2 to 51.1, with economists forecasting a rise to 51.5. These figures indicate that the PMIs in May continued the trend from April, reflecting a deteriorating macroeconomic environment.
On May 29, the International Monetary Fund (IMF) raised its 2024 growth forecast for China's economy to align with Beijing's expectation of 5%, attributing this to a better-than-expected performance in the first quarter of 2024 and Beijing's policy measures.
Nevertheless, the IMF expects China's economic growth to slow to 4.5% in 2025. The NBS PMI data for April and May indicate a downward trend in economic momentum, which is consistent with the IMF's outlook for 2025.
However, the Caixin Manufacturing PMI for China, to be released on June 3, might have a greater impact on market risk sentiment. Economists predict the Caixin Manufacturing PMI will rise from 51.4 in April to 51.5 in May.
Before the PMI data release, the Hang Seng Index rose by 0.98% to 18,410 points. Despite the weaker-than-expected data, the Hang Seng Index still increased to 18,537 points. On May 31, the Hang Seng Index rose by 1.43%, closing at 18,491 points.
In the subsequent trading session on Friday, the highly anticipated U.S. personal income and spending report will draw investors' attention. Higher-than-expected core Personal Consumption Expenditures (PCE) Price Index data for April could dampen investors' expectations of a rate cut by the Federal Reserve in September.
Economists predict that the U.S. core PCE Price Index will rise by 2.8% year-on-year in April, consistent with the growth rate in March. However, investors should also watch the personal income and spending data. An upward trend in personal income and spending could drive demand-driven inflation, further influencing market expectations regarding a Fed rate cut in September.
Economists forecast that personal income will grow by 0.3% in April, down from 0.5% in March. Additionally, personal spending is expected to grow by 0.3% in April, lower than the 0.8% growth in March.
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