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February 28, 2024

China’s outlook, early 2024: manufacturing PMI and modest recovery prospects

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In-house blogger
Guest blogger
Siwat Nakmai
Application specialist
All opinions expressed in this content are those of the contributor(s) and do not reflect the views of Macrobond Financial AB.
All written and electronic communication from Macrobond Financial AB is for information or marketing purposes and does not qualify as substantive research.

China's economy didn't rebound as strongly as many had hoped last year after the country lifted its zero-Covid policy, sparking even more interest in its economic prospects for 2024.

A key barometer for China's economic health is the Manufacturing Purchasing Managers' Index (PMI). We've delved into a wealth of time series data to get a clearer picture of China's economic activities. This includes everything from social financing and freight volume to employment trends and the business climate in real estate—not to mention key financial indicators like interest rates and commodity terms of trade.

Our journey through this data took us back to late 2015, a time rife with concerns about China's economic stability, through to the challenges of the trade war and the pandemic. This deep historical context enhances our ability to forecast future trends.

Our focus was on dissecting both the National Bureau of Statistics (NBS) and Caixin's PMI data, especially looking ahead to the February figures to be released on March 1.

We used Indicio to pinpoint the critical factors that influence the NBS manufacturing PMI, such as industrial employment, various manufacturing activities, financial conditions and real estate sentiment. Our analysis also covered the Caixin manufacturing PMI, where Indicio sugguested key influences like new order PMIs from Asia, global manufacturing trends, and financial conditions. For financial conditions that were found meaningful for both NBS and Caixin PMIs, further significant easing might help enhance manufacturing.

Using Indicio's platform, we employed a mix of analytic models to forecast the manufacturing PMI's direction, aiming for precise predictions without outliers. Our findings suggest a slight uptick in the manufacturing sector's PMI through the first quarter of 2024.

We're estimating the NBS manufacturing PMI at about 50.26 and the Caixin PMI close behind at 50.47 for February. As we look to March, we expect a slight convergence in these indices, signaling a modest upswing in manufacturing activity after recent fluctuations.

Despite challenges and the anticipation of significant support from fiscal and monetary policies, China's economy is poised for growth, albeit at a measured pace. This analysis underscores the nuanced recovery path and the critical role of manufacturing PMIs in gauging economic momentum.

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