China’s purchasing manager’s index (PMI) contracted for the first time since early 2009 during November.
A score of 47.7 was recorded by the index, down from 51 in October. A score of anything under 50 signals a contraction in the private sector economy.
Analysts had predicted a slowdown but underestimated the extent to which the private sector was deteriorating in output. A score of 48 was anticipated for November.
China’s surprise decision to cut capital reserve requirements for banks yesterday came as a clear signal that overall growth is slowing, with the PMI data suggesting a “hard landing” could be on the way.
Research agency Lombard Street Research has previously argued that China’s growth pattern will prove unsustainable, as a result of high inflation, aggressive monetary policy and faltering external demand.
“China’s cyclical ‘hard landing’ is about to get worse as the rest of the world is on the verge of recession,” says Diana Choyleva, an economist at Lombard.
“This should help cool inflationary pressures and untie Beijing’s hands next year. But if the authorities go for another monetary boost and credit-fuelled investment binge they will discover it will achieve a sustainable boost to real growth even less than last time around.”
China’s non-manufacturing PMI results will be released on Saturday. A score of 57.7 was recorded for October, down from 59.3 in September.
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