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China October official PMI set to confirm recovery trend

Labourers work at a steel factory in Dalian, Liaoning province July 13, 2012. REUTERS/China Daily
Labourers work at a steel factory in Dalian, Liaoning province July 13, 2012. REUTERS/China Daily

BEIJING (Reuters) - China's factory activity likely accelerated in October to its fastest pace in five months, according to a new Reuters poll that reveals a growing certainty of recovery taking hold in the world's second-biggest economy.

The poll of 14 economic analysts forecasts that China's official purchasing managers index (PMI) rebounded to 50.3 in October from 49.8 in September, a reading that suggests factory output is accelerating again after two months of slowing growth.

"I think the October PMI will help support our expectation for a better economic performance in the fourth quarter than in the third," said Wang Jin, a macro economic analyst at Guotai Junan Securities in Shanghai.

"Signs of a stabilizing external demand, faster infrastructure investment and a thawing property market all bolster a recovery in factory activity," he added.

The 50-point line demarcates expanding from contracting activity in PMI survey methodology.

In China's economy, where industrial output grew at a 9.2 percent annual pace in September, the rise above 50 suggests an acceleration of output that will help lift fourth-quarter GDP growth above the 7.4 percent annual rate achieved in the third quarter.

The expectations of a pick-up in the official PMI, which captures information principally from China's biggest, state-owned enterprises, follow a private-sector PMI survey last week.

The HSBC China flash PMI, which gathers more data from smaller, privately-held firms that have a strong export focus, signaled manufacturing activity at three-month high with a reading of 49.1, reflecting a slow but steady recovery in the economy.

The third quarter's 7.4 percent GDP growth rate marked the first miss of the government's official target since the 6.5 percent seen in the first quarter of 2009, and leaves the economy on course for its slowest full year of growth since 1999.

But Chinese officials have recently flagged optimism about the economic outlook, due to stronger-than-expected economic data in September, ranging from exports to investment and industrial growth.

Chinese Premier Wen Jiabao has said the economy is showing positive changes and the government is confident of achieving the annual target of economic growth for 2012.

China's industry ministry spokesman, meanwhile, said last week that industrial output may grow faster in the final quarter than the previous three months.

Some economists also expected the economy to have reached the nadir of a seven-quarter long economic downturn in the July-September period, but they also warned that the slowest three months of growth since the depths of the financial crisis and a cloudy external market could make the recovery outlook tepid.

China has followed a program of "fine-tuning" of economic policies for a year to help underpin growth. It is keen to avoid a repeat of aggressive fiscal and monetary stimulus used to buoy the economy in the wake of the 2008-09 global financial crisis which unleashed inflation, real estate speculation and prompted local governments to build up massive amounts of debt.

After cutting interest rates twice in a space of one month between June and July, the central bank has preferred open market operations since to inject cash into the financial system to keep liquidity flowing in the slowing economy.

Analysts said rebounding foreign exchange purchases in September and increasing signs of economic recovery reduced the chance of cuts to interest rates or reserve requirement ratios (RRR) at banks in coming months.

The official PMI generally points a rosier picture of the factory sector than the HSBC PMI as the official survey focuses on big, state-owned firms, while the HSBC PMI targets smaller, private firms that have limited access to bank loans.

There are also differing approaches to seasonal adjustment between the two surveys.

The official PMI survey will be released on Thursday, at 0100 GMT, ahead of the final HSBC PMI reading due at 0145 GMT on the same day.

BofAML 50.2

CICC 50.3

Forecast PTE 50.4

Guotai Junan Securities 50.2

Haitong Securities 50.1

Hwabao Trust 50.2

Industrial Bank 50.3

ING Financial Markets 50.5

Minsheng Securities 51.0

Sealand Securities 50.2

Shenyin & Wanguo Securities 49.5

Standard Chartered 50.3

UBS 50.0

Zheshang Securities 50.4

-----------------------------------

Median 50.3

High 51.0

Low 49.5

Sept official PMI 49.8

Number of responses 14

(Reporting by China Economics Team; Writing by Aileen Wang; Editing by Nick Edwards & Kim Coghill)

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