Tue, Jun 04, 2019 - Page 10 News List

Global recession fears grow as PMIs dip

REPLAY:Failure to resolve the US-China trade dispute might push the global economy into a recession and trigger a new race to the bottom on interest rates

Reuters, HONG KONG

Factory activity last month contracted in most Asian countries as an escalating trade spat between Washington and Beijing raised fears of a global economic downturn, and heaped pressure on policymakers in the region and beyond to roll out more stimulus.

Such growth indicators are likely to deteriorate further in coming months as higher trade tariffs take their toll on global commerce and further dent business and consumer sentiment, leading to job losses and delays in investment decisions.

Some economists predict a global recession and a renewed race to the bottom on interest rates if trade tensions fail to ease at a G20 summit in Osaka, Japan, at the end of this month, when US President Donald Trump and Chinese President Xi Jinping (習近平) could meet.

In China, the Caixin/Markit manufacturing purchasing managers’ index (PMI) showed modest expansion at 50.2, offering investors some near-term relief after an official gauge on Friday showed contraction.

However, the outlook remained grim as output growth slipped, factory prices stalled and businesses were the least optimistic on production since the survey series began in April 2012.

PMIs were below the 50-point mark separating contraction from expansion in Taiwan, Japan, South Korea and Malaysia, came below expectations in Vietnam and improved slightly in the Philippines.

“The additional shock from the escalated trade tensions is not going to be good for global trade and if demand in the US, China and Europe continues to soften, which is very likely, it will bode ill for Asia as a whole,” AXA Investment Managers SA senior emerging markets economist Aidan Yao (姚遠) said.

“In terms of the monetary policy response, almost everywhere the race is going to be to the downside,” Yao said.

In India, where growth depends largely on domestic demand, the manufacturing sector expanded at its quickest pace in three months, with sentiment boosted by a dramatic election win by Indian Prime Minister Narendra Modi.

However, further economic reforms would be crucial, as highlighted by Friday’s data showing the economy growing at its slowest pace in more than four years in the January-to-March period.

The expansion in the Philippines reflected strong domestic demand and less reliance on trade, while for Vietnam it is a reflection of a diversion of business and trade flows due to the tariffs.

A Societe Generale SA analysis showed that in industries affected by the tariffs — such as capital goods and some electronics — Taiwan, Germany, Mexico and South Korea have each won more US business.

Vietnam has been the biggest beneficiary in industries where tariffs are a threat, such as smartphones, and is also seeing investment from companies moving production out of China.

“Southeast Asian countries, especially Vietnam and Thailand, are often cited as the top choices, and indeed they look ready,” Societe Generale analysts said in a note on Friday.

The trade conflict last month suddenly escalated when Trump raised tariffs on US$200 billion of Chinese imports from 10 to 25 percent and threatened levies on all Chinese goods.

If that were to happen, and China were to retaliate, “we could end up in a [global] recession in three quarters,” Morgan Stanley global head of economics Chetan Ahya said.

Washington’s new tariff threats against Mexico last week also contributed to global recession fears, with stock markets tumbling around the world.

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