The official manufacturing PMI fell to a six-month low of 49.1 in August on weaker demand. IP growth may have slowed sharply to 4% year-on-year; export growth is likely to have accelerated partly due to base effects. Policy measures are likely to have supported investment in equipment and consumer retail sales. PPI deflation may have accelerated on subdued demand; CPI inflation is likely to have risen along with food prices, Standard Chartered macroeconomics analysts Hunter Chan and Shuang Ding note.

The growth dynamics is weakening

“The official manufacturing PMI fell to 49.1 in August from 49.4 in July, the lowest reading since February. The manufacturing PMI fell below 50 for the first time since February as new orders continued to fall. Industrial production (IP) growth may have fallen to 4% year-on-year in August from 5.1% in July. However, external demand is likely to have remained relatively stable. The PMI for new export orders improved by 0.2 points to 48.7.”

“The Services PMI improved 0.2 points to 50.2, driven by improved activity in transport, sports and entertainment in August, while equity, real estate and housing markets fell. Retail sales growth is likely to have seasonally rebounded to 4% YoY from 2.7% in July. YTD fixed asset investment (FAI) growth may have remained stable. While we believe equipment investment growth was resilient in August, infrastructure investment is likely to have remained weak. In addition, real estate investment may have contracted further.”

“We expect CPI inflation to rise by 0.1ppt to 0.6% y/y in August on higher pork and vegetable prices. PPI deflation likely intensified to 1.4% y/y as metal and construction material prices fell amid weaker demand. We expect total social financing (TSF) growth to hold at 8.2% y/y on a seasonal pick-up in CNY new loans and accelerated government bond issuance.”