For China, the purchasing managers survey data for April was the main focus, and the results are not very encouraging. China's PMIs have come under a much deeper contraction effect, underscoring the damage done to manufacturing and - more sharply - the service sector, from quarantines and other stringent measures to contain the Covid-19 outbreaks.
Official manufacturing PM fell to 47.4 from 49.5 in March, reflecting significant cuts in production and supply. Services PMI, on the other hand, fell from 48.4 to 46.9. China's Caixin manufacturing PMI, a survey that focuses more on exporters than the official PMI, fell to 46 from 48.1 in April, pointing to a deeper contraction after reading below the 50 threshold in March. This reflects the effects of the Covid-19 quarantines on production and exports. It's also the lowest reading since the nationwide lockdown in February 2020.
If we look at the sub-items; The index for export orders decreased from 47.2 to 41.6. The lockdown in Shanghai and tighter virus containment measures elsewhere have resulted in production disruptions and worsening supply chains. This delayed shipments and increased uncertainty about the strength of export orders in the coming months. Raw material purchase prices were realized as 64.2. Limited activity has also suppressed the construction activity. Although the index is in the growth zone with 52.4, it decreased by 5.4 points compared to the previous month.
As the damage from Shanghai's quarantine and stricter virus restrictions in other parts of the country becomes more apparent, PMIs will fall much deeper into contraction zones. While foreign demand is stabilizing, delays in the global supply chain will add to the pressure here. Domestic demand is struggling seriously due to the Covid quarantines, putting pressure on service with higher coefficients and manufacturing due to activity and supply delays. Weakness in the real estate sector is also pushing the construction industry into slowdown territory.
If we look from the point of view of PBOC; The policy trend towards relaxation will continue. Economic growth indicators will not recover in the early period. In the form of PBOC + public support, we expect the demand for rate cuts to continue and additional moves to accelerate the credit flow and domestic demand. As inflationary pressures develop on raw material supplies and the global slowdown profile, it will put a serious strain on the Central Bank.
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