The Chinese yuan recorded modest gains against the US dollar on Tuesday as the latest economic data was mixed. China’s post-pandemic recovery is being threatened by risks of stagflation, and with the omicron variant becoming the world’s next biggest concern, the world’s second-largest economy might witness a retreat.
According to the National Bureau of Statistics (NBS), the manufacturing purchasing managers’ index (PMI) rose to 50.1 in November, up from 49.2 in October – anything above 50 indicates expansion. The market had penciled in a reading of 49.6 and it represented the first month of growth in factory activity since August.
Beijing reported slightly higher output and buying levels, while new orders, export sales, and employment slipped. Business sentiment was largely unchanged at 53.8.
“A series of recent policy measures to strengthen the guarantee of energy supplies and stabilize market prices have shown results,” said NBS senior statistician Zhao Qinghe in a statement.
The non-manufacturing PMI dipped last month, coming in at 52.3. While this was the third straight month of growth in the service sector, new orders, employment, and export sales slipped. Input cost inflation declined sharply. Business confidence weakened to a three-month low.
Meanwhile, the general NBS Composite PMI Output Index climbed to 52.2 in November, up from 50.8 in October. This was the best monthly number since July.
The private-sector readings from Caixin will reveal the performance in manufacturing, services, and composite PMIs in November.
Next week, trade, inflation, and foreign exchange reserves data will be released.
Is China bracing for stagflation? Economic growth concerns have prompted market analysts to anticipate policy easing. Goldman Sachs China chief Economic Shan Hui expects easing will not be as aggressive as it was in 2015, leading to concentrated efforts on re-lending programs and leaving policy interest rates unchanged.
“We expect both improved implementation of these long-term policies and ‘less tight but not loose’ cyclical policies in 2022,” she added.
The Chinese yuan has had an impressive year, rallying more than 2% against the buck year-to-date. The currency is also poised for a monthly jump of about 0.4%.
The USD/CNY currency pair fell 0.24% to 6.3728, from an opening of 6.3881, at 13:16 GMT on Tuesday. The EUR/CNY advanced 0.42% to 7.2436, from an opening of 7.2144.