Asian factories stall on soft demand

‘JUST A BLIP’::The growth outlook for the region remains positive as strengthening economies in the US, Japan and Germany would support shipments, an economist said

Reuters, NEW DELHI

Fri, Jun 02, 2017 - Page 10

Factories across much of Asia last month ran into a soft patch as export demand slowed, but analysts said the weakness was likely to be temporary amid signs of steady improvement in the global economy.

The readings add to signs that Asian economies generally remained buoyant in the second quarter, with manufacturing activity continuing to improve — albeit at a more modest pace — and business confidence remaining strong overall.

Still, there were mixed readings on regional powerhouse China, with official data showing steady growth fuelled by an ongoing construction boom, but a private survey pointing to the first contraction in activity in 11 months.

The Caixin/Markit manufacturing purchasing managers’ index (PMI) fell to 49.6, weaker than expected and below the 50-point mark that demarcates growth and contraction.

The reading, which fell for the third month in a row, contrasted sharply with official readings on Wednesday that suggested a modest, but steady pace of growth from the previous month.

The fall in the PMI appears “consistent with the recent decline in the price of industrial metals” and is “consistent with our broader outlook on the Chinese economy,” Capital Economics Ltd China economist Julian Evans-Pritchard said in a research report. “After all, we have long been warning that the rebound in growth during the second half of last year would prove short-lived.”

After battling a multiyear trade recession, Asian exports have seen a strong rebound this year, often led by electronics.

However, the tailwinds from Chinese commodities and tech products demand appear to be fading.

Yet, the growth outlook for the region remains positive as strengthening economies in the US, Japan and Germany would support shipments from the region, ING Group NV chief Asia economist Tim Condon said.

“May figures are just a blip,” he said. “The hopes for cyclical recovery remains a positive theme, thanks to the strength of G3 economies.”

Data from Japan backed that assessment as manufacturing activity last month grew at its fastest pace in three months.

The world’s third-largest economy grew at its fastest pace in a year in the first quarter, marking the longest period of expansion in a decade.

An increase in capital expenditure in the first quarter also adds to a raft of data pointing to economic expansion.

Readings from Asia’s No. 4 economy, South Korea, also had investors scratching their heads.

The business survey showed factory activity last month shrank for a 10th straight month as output, new orders and employment fell further on persistently weak demand, particularly from the country’s major global markets.

However, official data yesterday showed the country’s exports last month clocked double-digit growth from a year earlier.

The factory output findings from private business surveys came a day after Moody’s Investors Service painted an upbeat picture of global growth.

Moody’s on Wednesday said G20 economies, which account for 78 percent of the global economy, are expected to grow 3.1 percent annually this year and next, faster than the 2.6 percent growth last year.

The agency also said the biggest risks to global growth, including protectionism and EU exits, seemed to have subsided.

However, China is widely expected to slow over the year due to reduced property-related investment as liquidity-tightening measures of the central bank, including limits on home mortgage lending, take effect.