Both sets of pmis also suggest the prices manufacturers pay for inputs and charge for outputs have declined. Some economists now think producer prices—those charged at the “factory gate”—may have fallen by more than 4% in May, compared with a year ago. Such price cuts are hurting industrial profits, which is in turn hampering manufacturing investment. This has raised fears of a deflationary spiral.
As a result, China’s economy faces the growing risk of a “double dip”, says Ting Lu of Nomura, a bank. Growth from one quarter to the next may fall close to zero, even if headline growth, which compares gdp with a year earlier, remains respectable.
Elsewhere in the world, weak growth is accompanied by uncomfortable inflation. This makes it harder for policymakers to know what to do. But China’s problems of faltering growth and falling inflation point in the same direction: towards easier monetary policy and a looser fiscal stance.
Some investors worry that China’s government is not worried enough. The central bank seems unconcerned about deflation. Even without much stimulus, the government is likely to meet its modest growth target of 5% this year, simply because the economy last year was so weak.
