Confidence About China’s One-year Outlook for Activity Remains Muted

July 09, 2012 /

Chinese companies remain confident regarding the one-year outlook for business activity in June, with
degrees of optimism broadly similar across both the manufacturing and service sectors.

Positive sentiment is linked by panellists to expectations of new business wins and hopes that economic
growth will improve in the coming year.

A net balance of +32 percent of companies expect activity levels to be higher come June 2013. This is
unmoved from February’s reading, and slightly below the BRIC (+36) and global averages (+37). In addition, the extent of positive sentiment is below the long-run trend for the survey.

On a sector basis, goods producers anticipate higher activity levels in 12 months’ time, with sentiment unchanged from the last outlook survey (+31). The net balance measuring service sector business expectations was slightly higher than the manufacturing equivalent, at +33.

Confidence regarding new order intakes has dipped slightly across both the manufacturing and service
sectors, which in turn has contributed to lower net balances for profitability and revenues. Additionally,
degrees of optimism with regards to new orders, business revenues and profits (across both sectors)
are below historical trends.

Companies meanwhile plan to recruit extra staff over the coming year. However, job hiring intentions remain muted in the context of historic data. The outlook for jobs growth is brighter in services relative to manufacturing for the fourth survey period in a row.

The movement in the index measuring the one-year outlook for input prices faced by China’s goods producers is arguably the key survey finding for June. Manufacturers expect input costs to be lower one year from now, with the net balance in negative territory for the first time since January 2009 (-3). In contrast, service providers anticipate a robust increase in average costs, albeit the weakest in five outlook periods (+35).

A fall in business confidence is apparent at the global level. Growth of activity is expected by +37 percent of private sector firms on balance, down from +44 percent in February. However, sentiment remains above that recorded in late-2011. US firms continue to be among the most positive in their growth expectations, although optimism has dipped since the previous outlook survey. Confidence across the BRIC economies is robust overall, although differences are evident at the national level, with Brazilian and Indian companies notably more bullish than those in China and Russia.

Firms around the world report lower expectations regarding input cost inflation, following recent price

falls for many commodities. Output charges are set to rise at a weaker pace accordingly.

Alex Hamilton, Economist at survey compilers Markit, said: “Chinese companies expressed cautious optimism
regarding the one-year business outlook in June, reflecting hopes of stronger near-term economic growth, albeit below-trend. Although firmly in positive territory, net balances for activity, revenues, new orders and profitability have dipped across both the manufacturing and service sectors, to levels below global averages.

“There was a noteworthy change in sentiment on the price front, with goods producers expecting a fall in input prices for the first time since January 2009. In contrast, service providers expect input prices to rise at a robust rate in the coming year.”


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