China - January PMIs indicate qoq growth will drop in Q1

China Macro: PMIs point to weaker growth momentum, ...

The January PMIs published yesterday point to a weakening momentum in the Chinese economy at the start of 2022. This partly reflects an Omicron-related tightening of restrictions in the run-up to the Lunar New Year holiday break (starting this week) and the Beijing Winter Olympics (4-20 February), with drags from the real estate sector prevailing. Most striking was the sharper than expected drop in Caixin’s manufacturing PMI, to a two-year low of 49.1 (December: 50.9, consensus: 50.0). This drop was broad-based, with both production and demand components falling clearly below the neutral 50 mark. The official manufacturing PMI also came down but much more gradually, to 50.1 (December: 50.3, consensus: 50.0). The fact that Caixin’s manufacturing PMI fell sharper compared to the official one suggests that the weakness is concentrated in smaller firms, as the official survey has a stronger focus on larger, state-owned firms. The PMI for small companies fell to a post-covid-19-shock-low of 46.0 in January, the ninth consecutive reading below the 50 mark.

... in line with an expected drop in qoq growth this quarter.

As expected due to the impact of Omicron-related restrictions, the official non-manufacturing PMI dropped by around 1.5 point to 51.1 (December: 52.7, consensus: 51.0), although remaining above the neutral 50 mark. Hence, so far the drop is much smaller compared to the original covid-19 related trough in February 2020 (29.6) and the Delta-outbreak related drop in August 2021 (47.5). Meanwhile, the official composite PMI fell back to a three-month low of 51.0 in January (December: 52.2). Due to the Lunar New Year break, Caixin’s services/composite PMIs will be due next week. All in all, the January PMIs are in line with our expectation that qoq growth will fall back in Q1-2022, after a pick up in the final quarter of last year. We expect piecemeal policy easing (including a relaxation of real estate regulation) to continue and quarterly growth to pick up in the course of this year. See the China chapter in our January Global Monthly, Policy easing continues as Omicron drag builds for more background.