China’s Manufacturing Contraction Boosts Case for Monetary Easing: Economy

A Chinese purchasing managers’ index signaled manufacturing may contract for a third month as a slowing economy boosts the case for the government to further loosen credit controls. The preliminary January reading of 48.8 for the gauge, released by HSBC Holdings Plc and Markit Economics today, compares with a final 48.7 number for December. The dividing line between contraction and expansion is 50. International Monetary Fund Managing Director Christine Lagardejoined global officials today in warning that the world economy is decelerating and faces “significant and urgent challenges.” China has allowed its five biggest banks to boost first-quarter lending and may relax capital requirements, people with knowledge of the matter said. “We expect more policy easing to stabilize growth and the next reserve ratio cut is likely to be delivered in the coming weeks,” said Qu Hongbinand Sun Junwei, Hong Kong-based economists for HSBC. “Demand is likely to remain relatively subdued for the coming months,” which may weigh on output and employment growth, they said.

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