Activity in China’s vast factory sector shrank again last month as demand softened at home and abroad, fueling fears that the world’s second-largest economy might be cooling more rapidly than expected just a few months ago.
Similar private surveys also showed growing strains on smaller and medium-sized manufacturing and service companies which are at the heart of China’s economy, providing most of its jobs and 60 percent of its GDP.
Activity at larger, state factories shrank for a second straight month, albeit at a slower pace than in August, while smaller manufacturers reported the worst conditions in six-and-a-half years and falling export orders pointed to more pain ahead.
“Two straight months of manufacturing sector contraction with a depressed equity market suggests China’s third-quarter GDP growth is likely to have slowed to 6.4 percent,” economists at ANZ said.
Still, there were no signs in the latest surveys that the economy is facing the worst-case scenario of a hard landing and ANZ believes that growth could pick up again later in the year as stimulus measures and higher government spending gradually take effect.
The official manufacturing Purchasing Managers’ Index (PMI) inched up to 49.8 last month from the previous month’s reading of 49.7, but still suggested conditions were deteriorating.
A private survey by Caixin/Markit focusing on small factories pointed to an even sharper cooldown, with the PMI shrinking to 47.2, the lowest since March 2009. Readings below 50 signal a contraction.
“The two PMIs taken together still point to subdued activity in the manufacturing sector,” Capital Economics economist Julian Evans-Pritchard said.
Both the official and private surveys showed manufacturers shed more jobs last month as sales weakened and new export orders continued to contract.
Perhaps more concerning for the government and investors were growing signs of stress in China’s services sector, which has been the lone bright spot for the economy in the last few years, but it too has begun to show signs of fatigue in recent months as consumers grow more cautious.
While larger services firms continued to expand at a fairly solid clip of 53.4 last month, growth for their smaller peers came close to stalling, official and private surveys showed.
The Caixin surveys suggested service sector growth is no longer strong enough to compensate for the growing downdraft from weak manufacturing and investment.
A composite PMI covering both manufacturing and services shrank for the second month last month and at a sharper rate.
The government is due to release third-quarter GDP data on Oct. 19.
Similar activity surveys and data from other trade-reliant Asian economies made for equally grim reading, with Japanese manufacturers seeing a tumble in new export orders, South Korean exports falling for a ninth consecutive month and Taiwan warning that its economy shrank in the third quarter.
Indonesian factory owners cut payrolls at the second-fastest rate in at least four years, while activity in Vietnam fell for the first time in two years.
Even Indian factories, which are more insulated from global trends, posted their slowest expansion in seven months.
The drop in activity is likely to have added to worries over the country’s sputtering growth and reinforced the rationale behind the central bank’s larger than expected interest rate cut this week.
The US dollar was trading at NT$29.7 at 10am today on the Taipei Foreign Exchange, as the New Taiwan dollar gained NT$1.364 from the previous close last week. The NT dollar continued to rise today, after surging 3.07 percent on Friday. After opening at NT$30.91, the NT dollar gained more than NT$1 in just 15 minutes, briefly passing the NT$30 mark. Before the US Department of the Treasury's semi-annual currency report came out, expectations that the NT dollar would keep rising were already building. The NT dollar on Friday closed at NT$31.064, up by NT$0.953 — a 3.07 percent single-day gain. Today,
‘SHORT TERM’: The local currency would likely remain strong in the near term, driven by anticipated US trade pressure, capital inflows and expectations of a US Fed rate cut The US dollar is expected to fall below NT$30 in the near term, as traders anticipate increased pressure from Washington for Taiwan to allow the New Taiwan dollar to appreciate, Cathay United Bank (國泰世華銀行) chief economist Lin Chi-chao (林啟超) said. Following a sharp drop in the greenback against the NT dollar on Friday, Lin told the Central News Agency that the local currency is likely to remain strong in the short term, driven in part by market psychology surrounding anticipated US policy pressure. On Friday, the US dollar fell NT$0.953, or 3.07 percent, closing at NT$31.064 — its lowest level since Jan.
The New Taiwan dollar and Taiwanese stocks surged on signs that trade tensions between the world’s top two economies might start easing and as US tech earnings boosted the outlook of the nation’s semiconductor exports. The NT dollar strengthened as much as 3.8 percent versus the US dollar to 30.815, the biggest intraday gain since January 2011, closing at NT$31.064. The benchmark TAIEX jumped 2.73 percent to outperform the region’s equity gauges. Outlook for global trade improved after China said it is assessing possible trade talks with the US, providing a boost for the nation’s currency and shares. As the NT dollar
The Financial Supervisory Commission (FSC) yesterday met with some of the nation’s largest insurance companies as a skyrocketing New Taiwan dollar piles pressure on their hundreds of billions of dollars in US bond investments. The commission has asked some life insurance firms, among the biggest Asian holders of US debt, to discuss how the rapidly strengthening NT dollar has impacted their operations, people familiar with the matter said. The meeting took place as the NT dollar jumped as much as 5 percent yesterday, its biggest intraday gain in more than three decades. The local currency surged as exporters rushed to
RSS