MUFG's report highlights that China's January PMIs have shown disappointing results, with the Manufacturing PMI falling to 49.3 and the Non-Manufacturing PMI dropping to 49.4. The report suggests that these declines may prompt further policy easing, including potential cuts to the policy rate and reserve requirement ratio if domestic growth does not improve. The analysis indicates that the construction sector is particularly weak, with a significant drop in the construction PMI.

PMI declines may lead to policy changes

"January official PMIs were a disappointment. Manufacturing PMI reading unexpectedly fell below the 50 level to 49.3, after briefly returning to expansion territory in December."

"The bright spot however lies on manufacturing PMI price-related sub-indices, with input price (i.e., main raw material purchasing price index) rising further to 56.1 and output price posted an expansionary reading for the first time since June 2024 at 50.6."

"Further easing likely on the way. In upcoming March NPC, we expect the budgeted fiscal deficit-to-GDP ratio to nudge higher to 4.5% and that the 'broad' fiscal deficit ratio to increase from 8.4% previously to 9.0%."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)