China in whirlpool and Lead footing growth

The Markit  Reports :  PMI data suggest industrial production growth has further to fall

 .. Weaker price pressures likely in H2 2011

Latest data from the National Bureau of Statistics (NBS) show industrial output growth easing from an annual rate of 15.1% to 14.0% in July. The slowdown in part reflects monetary tightening by the authorities in a bid to curb inflation. Although it is clear that the current cycle of interest rate and reserve ratio hikes is having the desired cooling effect on growth, the same cannot be said for inflation. Consumer price inflation hit 6.5% in July, the steepest pace for 37 months.
However, HSBC PMI™ survey data, compiled by Markit, show that policy tightening may be having an even greater effect, which is yet to feed through to official production and inflation numbers.

Electricity Consumption tapers.... A lagging Indicator of Slow down


Like the PMI™, electricity consumption also suggests that economic growth may have slowed sharply in recent months, and more so than the official industrial production data suggest (note that the PMI and electricity consumption have followed similar trends so far this year and both contrast with official production data).
                               Choking of Export and Import

The latest PMI™ survey findings also show new export orders falling in China for a third successive month during July. Growth of new export orders soared towards the start of 2010 according to both the official data and PMI series, with the latter depicting a gradual easing in the underlying trend in growth since then.

The pace of import growth has also come off the boil since the start of the year, with the PMI™ Quantity of Purchases Index – measuring the amount of semi-manufactured goods and raw materials acquired by manufacturers – signalling a second successive month-on-month decline in purchasing activity (in line with lower output requirements). As a result, firms reduced their stocks of purchases at the fastest rate for 28 months during July.

                                   Has inflation peaked?
A moderation in the demand for inputs has meant that suppliers have been increasingly unable to push up the prices they charge manufacturers for inputs. This, coupled with recent steep falls in commodity prices and a higher base effect, augers well for consumer price inflation, with the PMI™ Suppliers’ Delivery Times Index consistent with an easing in the headline rate of inflation going forward. The index has acted as a good leading indicator of consumer price inflation