Manufacturing activity in Asia expanded last month as China’s economy showed signs of revival, but export demand was uneven, pointing to further sluggish growth for the region, business surveys suggest.
Private and official manufacturing surveys added to evidence that China’s economy picked up late in the year, while activity in India expanded at its strongest pace in six months last month, boosted by strong factory output and a spike in new orders.
Similar reports yesterday also showed activity increased in South Korea and Taiwan for the first time since May.
“Asia is gradually improving, but the region, including China, remains largely exposed to exports and without signs of improvement in the US and Europe it will be hard for activity to take off,” said Frederic Neumann, co-head of Asian economics at HSBC.
A last-minute deal in Washington to avoid steep tax hikes and spending cuts in the US from Tuesday may not remove an expected drag on the world’s largest economy, Neumann added, saying that more heated political battles over US fiscal policy were likely in coming months.
“We have a triple ‘fiscal cliff’ coming up in March,” Neumann said, referring to talks over the US’ debt ceiling and other upcoming budget battles.
“We will probably only get clarity on the outlook for the year by the second quarter,” he said, adding that the Chinese New Year holidays early in the year also tended to distort trade and production patterns.
The official China manufacturing purchasing managers’ index (PMI) released on Tuesday held steady last month at 50.6, matching November’s seven-month high, while a similar survey by HSBC released a day earlier, which focuses more on smaller and mid-sized firms, suggested activity was at its strongest since May 2011.
In India, Asia’s third-largest economy, the HSBC Markit Manufacturing PMI, which gauges the business activity of the country’s factories, but not its utilities, jumped to 54.7 last month from 53.7 in November, its biggest monthly rise since January last year.
A similar survey of South Korea’s manufacturing sector edged up to 50.08 last month from 48.16 in November. It was the first time since May that the index stood above the 50-point mark that separates growth from contraction.
Sub-indices for overall output and new orders were marginally above 50, driven by new product launches that met domestic demand. However the new export orders sub-index fell to 48.86 last month, marking the seventh month of contraction as overseas consumer sentiment wilted.
Activity in Southeast Asia’s largest economy, Indonesia, also expanded, but at a slower rate, as growth of new export orders eased from a month earlier.
Business sentiment among Asia’s top companies improved slightly in the fourth quarter, reversing two consecutive quarters of decline, while global economic uncertainty remained the biggest concern for the region’s firms, a recent Thomson Reuters/INSEAD survey showed.