China and other Asian countries where the manufacturing sector remains weak, will probably implement more easing and other forms of stimulus measures to bolster growth, according to economists from HSBC and Bank of America Merrill Lynch.
Latest PMI data in China, Japan, India, Indonesia, South Korea and Taiwan showed that the manufacturing sector in these countries have yet to roar back to life. Though some recovery has been noted in China this month, it’s not enough to inspire some confidence on the economy that’s facing its slowest growth in more than two decades this year.
According to the official PMI data released Wednesday, the reading for manufacturing output stood at 50.2 in June, unchanged from May and below the 50.3 forecast in a Reuters poll. The HSBC PMI data for the same month, released 45 minutes after the official figure, showed a reading of 49.4, up from 49.2 in May, and less than the preliminary 49.6. CNBC
“The issue is of particular concern in China, where both PMI measures are pointing to a weaker labor market. Officials have maintained that they are more concerned about job security than headline GDP growth. From this perspective, a lot more needs to be done. Get ready for more stimulus, in China and elsewhere,” HSBC economists Frederic Neumann and Rupali Sarkar wrote in note Thursday.
Just over the weekend, China’s central bank, the PBOC, announced a twin measure aimed at stimulating growth and supporting the country’s shaky stock market. The PBOC announced a 25bps cut in its key interest rates (its fourth since November) and a 50 bps reduction in the reserve requirement ratios of banks (the third this year), the first time that the two measures were implemented simultaneously since the 2008 global financial crisis.
Xiaojia Zhi and Sylvia Sheng, China economists at BofA Merrill Lynch, maintained their views that the PBOC will further cut its policy rates as well as the reserve ratio.
“We expect further policy easing to improve real demand and stabilize market sentiment. On the monetary policy front, the PBoC will likely take multiple measures to improve liquidity and credit supply for the real economy and lower market rates and financing costs for borrowers,” the BofA Merrill Lynch economists wrote in a note on Thursday.
Bofa Merill Lynch expects the PBOC to reduce rates by 25bps more in the third quarter, coupled with a 100 bps cut in banks’s reserve requirement ratios for the rest of the year.
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