The BIMCO House
BIMCO: Shipping number of the week:
China’s manufacturing PMI rises to 52 in March
The Purchasing Managers’ Index (PMI), which reflects manufacturing activity, rose above the threshold level of 50 in March in China, indicating an improvement compared to February. The improvement reflects the easing of lockdowns and containment measures in the country due to the coronavirus (COVID-19), as much of the rest of the world entered into lockdown
Although the headline is positive and shows growth, it must be looked at in the context of the February PMI. The PMI is determined through surveys sent out to supply chain managers who report on their activities in the current month compared to the previous month. In February, the Chinese manufacturing PMI fell to 35.7, indicating a massive contraction in activity compared to January. Therefore, the 52 level recorded in March indicates that while manufacturing grew compared to February, it remains far below January levels. It will take many consecutive months of PMI readings slightly above 50 for manufacturing activity to return to pre-coronavirus levels.
For shipping, the recovery, although modest, is good news. But with manufacturing levels still far below January levels, a V-shaped recovery providing a sudden boost in demand is unrealistic. This is especially true now that much of the rest of the world has entered into lockdown. The widespread restrictions will hurt demand for Chinese exports, even as China slowly returns to normal capacity.
The new export orders index, which gives insight into China’s exports in the coming months, already shows a decline in demand. New export orders continued to fall in March with an index reading of 46.4, even after the massive fall in February where the index stood at 28.7.
