Wed, Jun 24, 2015 - Page 15 News List

Asian factories show slow stabilization

CHINA AND JAPAN:Markit economist Annabel Fiddes said Chinese authorities might step up stimulus measures, while a slowdown in Japan is hoped to be only temporary

Reuters, SYDNEY

China’s mammoth manufacturing sector showed some tentative signs of stabilizing this month, according to a non-official survey, without finding the momentum needed for a lasting recovery in the world’s second-largest economy.

Optimism appeared in short supply as firms surveyed by HSBC/Markit reported the sharpest reduction in hiring intentions for six years, regardless of Beijing’s efforts to kick-start activity through policy stimulus.

The headline flash measure of Chinese manufacturing (PMI) did edge up from 49.2 last month to a three-month high of 49.6 this month, but remained below the 50 mark, which separates contraction from expansion.

New orders returned to positive territory at 50.4 and new export orders fell at a slower pace, but companies stepped up layoffs. Factories were also forced to cut prices for their products at a faster rate.

“This suggests companies have relatively muted growth expectations ... and suggests that authorities may step up their efforts to stimulate growth and job creation in the second half of the year,” Markit economist Annabel Fiddes said.

With factory activity apparently shrinking for three straight months, it is becoming mathematically harder for China to avoid economic growth falling below 7 percent in the second quarter for the first time since the global financial crisis of 2008 and 2009.

“After a decade of pell-mell growth in both capacity and leverage, this situation is symptomatic of excess supply capability in manufacturing amidst moribund demand,” Westpac analysts said in a research note issued after the survey’s release. “This nexus of low confidence and weak demand for credit is an obvious impediment to growth.”

The news from Japan was not any better. The factory sector actually went backward this month, as a recovery in the world’s third-largest economy continued to struggle after a recession in the middle of last year.

The Markit/JMMA version of the PMI for Japan fell from a final 50.9 last month to 49.9 this month, adding to evidence that the economy had slowed after a brisk first quarter.

Many economists hope this pullback will be temporary as consumer spending, exports and capital expenditure show signs of driving future growth.

However, they still suspect the Bank of Japan will ease policy again later this year to spur activity further and push inflation to its 2 percent target.

Surveys of factories in some European economies offer evidence of a much-needed pickup in the region.

Markit Economics said yesterday that its composite index of services and manufacturing for Germany climbed from 52.6 last month to 54. That was stronger than the reading of 52.7 forecast by economists in a Bloomberg survey.

However, Markit’s report shows new business placed with German companies rose the least this year and job creation slowed from last month.

The data “paint a mixed picture of the health of Germany’s private-sector economy,” Markit economist Oliver Kolodseike said. “While companies reported that output rose at a stronger rate than in May, the latest increases in new business and employment were only slight and suggest that activity growth may slow again in coming months.”

For this month alone, Markit’s manufacturing index for Germany advanced from 51.1 last month to 51.9, while the services measure increased from 53 to a three-month high of 54.2.

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