News | Question of the Week, WC 4th March
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Q: How serious is China’s slowdown for other economies in the region?
A: China’s import price subindex of the PMI is a good leading indicator for exports in the region, and even for manufacturing indicators globally. It sometimes overstates the severity of the downturn, but right now it’s not looking good, as you can see in the chart. The seasonals in February were unfavourable as there were fewer than the average number of working days, but even after adjustment, the picture looks grim, especially as the lead on economies such as Japan is quite long. Looking further down the line, the tightening of China’s monetary conditions since mid-2016 implies that a floor for imports will remain illusive until the second half. In short, China’s deleveraging and de-risking campaign has ended up restraining firms' cash balances, curbing their activity in the real economy. Tariffs have been a nasty sting in the tail. Effectively, the cogs in the Chinese part of the global supply machine are badly in need of some oiling. PBoC easing should provide the necessary liquidity, with monetary conditions showing signs of loosening, suggesting a recovery in the second half.
(click charts to expand)
Freya Beamish, Chief Asia Economist
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Posted: 8th Mar 2019
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