Chinese manufacturing continued is recent slump as output fell to an eight-month low according to the HSBC Purchasing Manager’s Index, which showed a reading of 48.1 in March, compared to February’s 48.5.
Any reading below 50 shows contraction, whereas a number above indicates expansion in the factory output of the world’s second largest economy.
Qu Hongbin, an economist at HSBC believes that these poor numbers will prompt authorities to implement new policies in order to help sustain growth. He listed new subway systems, anti-pollution measures and public housing among some of the most likely targets of government spending.
Many others also seem to believe that government intervention is likely in the near future, as speculation about possible stimulus helped the Yuan achieve its biggest daily gain in nearly 30 months on Monday.
However, some analysts are concerned about the recent trend of poor economic data coming out of China. Earlier this month, several major banks cut their GDP projections for the country’s after reports showed fixed-asset investment during the months of January to February rising at the slowest pace since 2001.
Goldman Sachs noted that China faces a “bumpy road ahead”, cutting its 2014 forecast from 7.6% to 7.3%, and its outlook in 2015 from 7.8% to 7.6%. JPMorgan Chase, Barclays and Bank of America Merrill Lynch (BofAML) also downgraded their growth projections, among other financial institutions.
“Both trade and consumption – factors that we had expected to provide positive support to growth this year – disappointed in the first two months of 2014, relating to the anti-corruption efforts, which affected consumption, and the soft DM (developed market) recovery,” wrote a group led by Li Qui, Chief China Economist at Goldman Sachs.
China’s CSI 300 index, which is composed of major stocks listed on the Shanghai and Shenzhen exchanges, fell after the factory data was released before rebounding later in the day as investors considered an increased likelihood of stimulus.