It’s good news for China’s economy even though China’s markets may be somewhat disappointed.
Today the preliminary reading on the Purchasing Managers Index put together by HSBC and Market Economics showed a reading of 49.1 for October. That was still below the 50 level that divides growth from slowing, but it is a marked improvement from the 47.9 reading in September.
Along with greater than expected September increases in retail sales (14.2%) and industrial production (9.2%), today’s survey supports the argument that China’s economy hit its growth bottom in the third quarter and started a modest re-acceleration in growth. That trend was suggested in GDP numbers for the third quarter that showed stronger growth in September than for the earlier two months in the quarter.
All of this may be slightly disappointing to traders in Shanghai who have been hoping for a cut to the benchmark lending rate by the People’s Bank of China. The thinking has been that the government would want to stimulate the economy ahead of the November 8 installation of a new generation of leaders at the 18th Party Congress.
Now that rate cut looks less likely with growth showing signs of rebounding. The consensus among economists surveyed by Bloomberg is that the central bank will keep its benchmark lending rate at 6% through the end of 2012.
My own take is that the People’s Bank is likely to keep the interest rate status quo through the end of the year until it can judge how fast or slow the reacceleration might be. That would keep the bank’s powder dry in case the speed up in growth is too little or in case it shows signs of faltering. I think a cut in the reserve ratio is still on the table, however, and in fact likely before the end of the year since it would signal the People’s Bank’s commitment to growing the Chinese economy.
The rate and reserve ratio decisions aside, today’s flash reading is good news for the global economy.
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