A February post suggested that Chinese economic data would show renewed weakness, based on soft monetary trends and a downturn in leading indicators. The forecast receives support from today’s Markit “flash” manufacturing PMI survey for March, showing a fall in the key new orders index to its lowest level since November – see first chart.
The authorities need to accelerate policy easing to avert the risk of a “hard landing”. Repo rates have fallen recently, which may presage another cut in the system-wide required reserves ratio or even official interest rates – second chart. (The reserves ratio was reduced yesterday for selected branches of the Agricultural Bank of China.)
Policy-makers, however, may be cautious ahead of the March CPI inflation release, which may show a rebound from February’s 3.2% print due to New Year timing effects and recent firmer food prices – third chart.
