More Weakness Found in China’s Economy

The economy in China continued to become weaker during November according to two gauges regarding factory activity that showed manufacturing had lost its momentum despite a recent drop in the country’s interest rates.

Shares in China were up on Monday morning in trading as investors were betting the weak numbers from the purchasing managers’ index would prompt the central bank in China to cut its interest rates even further.

The official measure in China for manufacturing activity dropped to the lowest point since March and a private gauge collected by Markit the research firm and HSBC hit a low of six months.

An economist in China said the PMI data had suggested that the fundamentals were still quite weak.

On November 21, the one-year lending rate of the People’s Bank of China was cut by 0.4% to 5.6%. The deposit rate was lowered by 0.25% as well to just 2.75%, which were the first cuts that were broad-based since July of 2012.

Economists said however, that they do not see a great deal of evidence as of yet that the interest rate cut last month boosted output.

The cost for capital is lower, but banks are not expecting to pass the complete benefit to its customers and are more apt to continue favoring state-owned businesses and the government with the best terms for lending.

HSBC forecast there would be a .50% cut in the interest rates by the end of the first six month of 2015 and a cut of 1.50% within the next 12 months in the interest rate on reserves financial institutes must hold with the country’s central bank.

The weaker readings from the purchasing managers’ index on Monday go hand in hand with weaker industrial production, consumption, investments and lending activity of recent weeks.

The gross domestic product in China was up by over 7.3% during the third quarter, which was its slowest pace in over 5 years.

The official PMI index in China dropped to 50.3 during November in comparison to 50.8 during October.

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One Response

  1. Jack Morris says:

    It is very depressing to know that GDP in China has suffered worsening country’s economy

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