China business confidence is on the decline, with the nation’s largest companies reporting a worsening sentiment in March.
According to the latest MNI China Business Sentiment Survey, a gauge of current business sentiment, the fall marked the third consecutive monthly decline. It slipped from 52.8 in February to 52.2 in March, leaving confidence at the lowest level since October 2014.
The slight weakening comes in spite of the recent stimulus measures implemented by the PBOC in February. A pick-up in new orders and comments by party officials indicating that there are more tools to contain the slowdown helped drag the Future Expectations Indicator from February’s series low, placing it above the level of the current indicator, a sign that businesses expect the situation to improve.
The weakness in overall sentiment belied some improvement in other key metrics in the survey. Most notably, production and new orders both picked up in March, following a plunge in February. Both indicators have lost momentum in 2015 after ending 2014 on a strong note on the back of increased infrastructure spending in December.
Firms were relatively more upbeat about the coming quarter with both expectations indicators expanding at a faster rate.
Deflationary pressures intensified in March, with input prices plunging to the lowest since July 2013, wiping out nearly two years of gradual increases at once in March. Over the last year, firms have commented that the aggregate price of their inputs has steadily expanded, primarily due to increased labour costs and burden from regulations outweighing falls in global prices for commodities.
Prices received bounced slightly after hitting a six-year low in February, but remained in contraction for the eighth consecutive month. Companies’ expectations for prices fell to the lowest since the series began in 2007, suggesting deflationary pressures are likely to continue in the near future.
“The March survey shows a mixed picture with headline sentiment easing but other key activity indicators stabilising. Still, the deflationary pressures evident in our survey and general softness in the data suggest the central bank should maintain its current easing bias,” said Philip Uglow, chief economist of MNI Indicators.
MNI China Business Sentiment is a monthly poll of Chinese business executives at companies listed on either the Shanghai or Shenzhen stock exchanges. Companies are a mix of manufacturing and service sector firms. With over five years of history, the survey tracks and predicts Chinese economic conditions and is an important leading indicator of GDP.
MNI Indicators is part of Deutsche Borse Group and offers macroeconomic data and insight to businesses and the investment community.
