How Will China's Slowed Manufacturing Impact the Global Economy?
China HSBC Flash Manufacturing Purchasing Managers Index fell to 49.6 for May due to weaker domestic and international demand. A value below 50 means that manufacturing has slowed compared to the previous month. This is the first time contraction has occurred for the last seven months.
According to a Bloomberg survey, analyst consensus for the HSBC PMI was 50.4, indicating growth over April. Analysts predict Chinese 2013 growth to be around 7.5 percent, the slowest rate in 23 years.
Surprising manufacturing numbers could have several implications on the global economy.
The Chinese government may take steps to stimulate the Chinese economy, similar to the Federal Reserve's quantitative easing or cut taxes on businesses allowing manufacturers to offer goods at lower prices while maintaining profitability. In addition, the government could further weaken its currency to boost exports.
Global markets may use this as further reason to unwind overbought conditions. Japan's Nikkei closed down 7.32 percent last night and S&P futures are down almost one percent in premarket trading.
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