Economists: China mfg to slow further before 2009 rebound (12/2/2008)

Economists: China mfg to slow further before 2009 rebound (12/2/2008)

2008-12-2 10:24:00

BEIJING, Dec. 1 -- China´s manufacturing activity will slow further before rebounding next year, investment bank Merrill Lynch said in a research note.

Data released on Monday showed the purchasing managers´ index (PMI) of the manufacturing sector plunged to a record low of 38.8 in November from 44.6 in October, as the global economic slowdown hit demand for Chinese goods.

It was the fourth month that the PMI was below 50 this year. A reading above 50 suggests expansion, while one below 50 indicates contraction.

The PMI includes indices used to gauge economic performance. The index measuring new orders dropped to 32.3 in November, from 41.7 in October.

"De-stocking in finished goods has yet to occur, implying further production cuts going forward," UBS Securities said in a note.

Further, the plunge in the PMI suggested that industrial production growth will deteriorate further in November from 8.2 percent in October, the slowest pace in seven years, Merrill Lynch said.

All other major macroeconomic indicators, including growth in exports and imports, investment and consumption, are expected to decelerate significantly before year-end, it said.

Gross domestic product growth in the fourth quarter will mostly likely fall below 8 percent, and perhaps closer to 7 percent, from9 percent in the third quarter, Merrill Lynch said. The economy is forecast to slow further for another several months before a rebound in the second quarter.

"It takes several months for fiscal spending to significantly add demand and for business confidence to be revived from this ´heart attack´ due to the financial tsunami since mid-September," said the Merrill Lynch.

"It´s our view that China´s massive fiscal stimulus plan will help buffer the slowdown in 2009 and we reiterate our 8.6 percent GDP growth forecast for 2009."

Last month, China unveiled a 4 trillion yuan (581 billion U.S. dollars) stimulus package, raised export tax rebates and cut value-added tax as it sought to avert an economic slump. It also cut the lending rate by 1.08 percentage points as of Nov. 27, the biggest reduction in 11 years and the fourth cut since mid-September.