China HSBC Flash PMI eases, points to tepid Q2 recovery

Falls to 50.5 in April from 51.6 in March as new export orders shrink

Growth in China's vast factory sector dipped in April as new export orders shrank, a preliminary survey of factory managers showed on Tuesday, suggesting the world's second-largest still faces formidable global headwinds into the second quarter.

The flash HSBC Purchasing Managers' Index for April fell to 50.5 in April from 51.6 in March but was still stronger than February's reading of 50.4.

A sub-index measuring new export orders fell to 48.6 in April from 50.5 in March, reflecting weaker global demand as the US economic recovery remains fragile and the euro zone is mired in recession.

The latest PMI data may overshadow China's recovery in the second quarter after growth unexpectedly slowed to 7.7% in the first quarter from 7.9% in the previous three months.

Still, the HSBC PMI has been above the 50-point level demarcating growth from contraction from the previous month since November 2012, though its failure to break above 53 indicates that the economic expansion it signals is only moderate.

"New export orders contracted after a temporary rebound in March, suggesting external demand for China's exporters remains weak," said HSBC's China chief economist Qu Hongbin.

"Beijing is expected to respond strongly to sustain the economic recovery by increasing efforts to boost domestic investment and consumption in the coming months."

The International Monetary Fund on Tuesday cut its 2013 forecast for global growth to 3.3%, down from its January projection of 3.5%.

Sub-indexes measuring both input and output prices fell in April, indicating overcapacity upstream and soft demand, according to the Flash PMI survey.

An employment sub-index also dipped as factory activity cooled, although China's job market is holding up relatively well despite slower growth.

Tepid recovery

The latest Reuters poll showed China's economic growth could pick up in the second quarter as the government boosts infrastructure spending.

Analysts in the poll expected full-year economic growth to pick up slightly to 8.0% in 2013 from 7.8% last year, its weakest rate since 1999.

The government is expected to step up infrastructure investment to cushion the economy against global headwinds, but a big stimulus package looks unlikely as Beijing plans to deepen reforms to put growth on a more sustainable long-term footing.

On Tuesday the China Daily newspaper quoted a researcher from the Ministry of Finance as saying that stimulus on the scale of that in 2008 was not necessary, as the economy is on an overall stable trend.

China has set a 7.5% GDP growth target for 2013, a level Beijing deems sufficient for job creation while providing room to deliver structural adjustment.

The Q1 slowdown, which came despite a credit boom, suggesting the cash sloshing around the economy is not having the desired effect of stoking growth and could instead exacerbate property and inflationary risks.

The final HSBC manufacturing PMI is scheduled to be published on May 2, a day after the official PMI.