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China PMI contraction adds pressure for more policy support

Commerzbank said China’s GDP is tracking below the official 4.5% to 5.0% growth target range after two months of broad PMI declines.

Reported · Written up by our desk · Central Banks

Commerzbank’s Dr. Henry Hao said two months of broad Purchasing Managers’ Index contraction are leaving China’s GDP growth tracking below the official 4.5% to 5.0% target range, increasing pressure on Beijing to step up support.

FXStreet reports that fiscal spending is only slowly easing from austerity, with government spending contracting 4.4% year over year in July, an improvement from June’s 11.9% decline. The same view pointed to new coordinated fiscal and financial policies being drafted for deployment in the second half of the year.

On the monetary side, the People’s Bank of China is signaling moderately loose policy, including potential reserve requirement ratio and rate cuts. FXStreet notes Commerzbank expects pre-emptive easing before year end to be more likely, rather than waiting for additional deterioration.

The coverage also points to near term FX and macro catalysts, including market attention to the Federal Reserve rate path and upcoming data such as flash euro zone inflation, US JOLTs, and ISM Manufacturing.

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