Asia Economic Weekly: China: Recent import surge hardly a sign of rebalancing

Research evidence excerpt

Asia Economic Weekly: China: Recent import surge hardly a sign of rebalancing

This Week in Focus

Recent data suggests mixed growth backdrop across the region. In China, May PMIs

point to sustained supply-side resilience but ongoing demand softness. India remains

mixed, with resilient activity but weaker fiscal and external momentum alongside rising

inflation and weather risks. Japan inflation stays soft near term on one-offs, but should

gradually firm later this year. Meanwhile, Indonesia faces a cautious outlook amid

weaker trade and higher inflation, keeping policy finely balanced.

China: May PMIs suggest demand still fragile; Market focus on activity data

Manufacturing PMI eased to 50.0 in May (vs. Apr 50.3), in line with expectations and the

breakeven threshold. In contrast, the non-manufacturing PMI rebounded to 50.1 (vs. Apr

49.4), returning to expansion and suggesting a tentative stabilization in services and

construction activity. Overall, the May PMI readings suggest continued supply-side

resilience, while demand conditions remain fragile.

Market focus now shifts to the May activity data to assess whether April’s softness

persists. We expect IP to see a modest rebound to 4.5% yoy, but underlying demand

remains weak, with both fixed asset investment and retail sales continuing to ease.

Trade momentum should stay firm, supported by double-digit export and import growth

driven by elevated prices in key products. Inflation is likely to edge up to around 1.5%

yoy in May, while credit growth may slow further, signaling tighter financial conditions.

India: Early May activity data gives mixed signals; IMD lowers monsoon outlook

With over three months of the ongoing Iran conflict, we are seeing pockets of weakness

in April and early May economic data.