The HSBC Flash China Purchasing Managers’ Index (PMI) for manufacturing, released a week before the final data is released, has fallen to a 10-month low in May. It is yet another warning signal for commodity prices because if China sneezes, commodities catch a cold. Investors have also been moving out of commodity sector funds, with data from EPFR Global showing that redemptions from these funds in the three weeks to 18 May were just shy of $5 billion.
Also see | HSBC China Purchasing Managers’ Index for manufacturing (PDF)
Nevertheless, the slowdown in China is far from being a hard landing. HSBC’s chief economist for China, Hongbin Qu, said that the current level of PMI is consistent with the 9% growth in the gross domestic product. That should limit the downside for commodity prices. On the other hand, the slower growth will take some heat off inflationary pressures across the world. Interestingly, the new export orders component of the
Chinese PMI shows a change of direction and a contraction in May. This could tie in with the slowing US economy, as the Weekly Leading Indicator of the Economic Cycle Research Institute in the US has started to roll over. If these trends persist, we are looking at a period of slower growth for the global economy.
Graphic by Naveen Kumar Saini/Mint
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