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China’s manufacturing slump may be bottoming out

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Back to work, boys...Photograph by Goh Chai Hin — AFP/Getty Images

The slump in China’s manufacturing sector may be bottoming out.

Research firm Markit Economics said Monday its purchasing managers’ index (PMI) bounced strongly from a six-and-a-half-year low in October, to an index level of 48.3 from 47.2 in September. Although that’s still technically in contraction territory, it’s a clear break from a negative trend that has been in place since the start of the year, and one of the strongest signals yet that stimulus steps taken by the authorities in Beijing are starting to have an effect.

Output, new orders and exports all rebounded after a sharp decline in September, when foreign trade partners had held back in the expectation, or hope, that Beijing would allow the renminbi to keep depreciating against the dollar, after breaking that taboo in August.

However, the Chinese currency is now heading firmly in the other direction, after last week’s announcement by the People’s Bank of China to quicken up the process of liberalizing foreign exchange transactions. The central bank moved the central rate for the renminbi’s fixing up Monday by around 0.5%, the biggest such move since 2005.

The news hasn’t all been good, though. The official Chinese PMI, which gives more weight to large, state-owned enterprises, remained stuck in contraction mode at 49.8 in October, the National Bureau of Statistics said at the weekend.

Markit’s PMIs for the rest of the world were generally positive, with Europe in particular defying expectations of a weak start to the fourth quarter. The Eurozone’s PMI ticked up to 52.3 from 52.0 and the U.K.’s roared ahead to 55.5 from an upwardly revised 51.8 in September, a welcome development after the country said GDP growth slowed to 0.5% in the third quarter from 0.9% in the second.

The standout performer in the Eurozone was Italy, which hit a three-month high of 54.1. Italy’s economy has shown increasing signs of picking up in recent months, as conditions in its banking sector and labor market have improved.

Even so, Markit’s chief economist Chris Williamson said the Eurozone’s recovery remained “insipid”, calling it “a lackluster performance given the amount of central stimulus in place.”

Another economy to pick up in October was Russia, which has been in recession for most of the year under the influence of the oil price collapse and western sanctions over its role in the Ukraine conflict. The Russian manufacturing PMI nudged above 50, the level that signifies growth, for the first time in 11 months as firms responded to an increase in new orders. The sector continued to shed jobs, but at the slowest rate since March, Markit said.