Activity in China’s factory sector expanded slightly last month though not as much as expected, official surveys showed yesterday, suggesting the economy might be starting to slowly level out after a raft of support measures, including interest rate cuts and more infrastructure spending.
Japanese factories barely expanded, but a private report released yesterday showed a strong pickup in export orders, while a Bank of Japan survey showed a strong bounce in business confidence and spending plans, a welcome sign for Japanese Prime Minister Shinzo Abe’s economic revival strategy, which has seen limited success in nudging firms to boost wages and investment.
“When you have two of the biggest economies in the world showing positive readings, that is encouraging. They also come on the back of some good readings out of the United States,” said Craig James, chief economist at CommSec in Sydney.
China’s official manufacturing Purchasing Managers Index (PMI) for last month came in at 50.2, unchanged from May, while the services PMI climbed to 53.8 from 53.2 in May, above the 50 level that is supposed to separate growth from contraction.
“Business development momentum is still insufficient, and domestic and foreign demand remains weak,” China’s National Bureau of Statistics said.
A private factory survey released yesterday showed activity contracted for the fourth straight month last month, but at a slower pace than in May. The official survey focuses on larger, state-owned firms, and the private one on small and medium-sized companies, which are facing tougher financial and operating conditions.
“It basically highlights there is some degree of stabilization happening and it is ... what the authorities want to see,” James added.
Analysts at Australia and New Zealand Banking Group Ltd (ANZ), though, suspect softness in the manufacturing sector would require more policy easing.
“Looking ahead, as real interest rates faced by Chinese companies remain elevated, we see that further monetary easing is still highly needed,” ANZ economists Liu Li-Gang (劉利剛) and Zhou Hao (周浩) wrote in a research note.
On Saturday, China’s central bank cut lending rates for the fourth time since November last year and trimmed the amount of cash that some banks must hold as reserves. The dual central bank action was the first since the height of the global financial crisis in late 2008.
Meanwhile, the mood among big Japanese corporations is unexpectedly upbeat, despite recent data showing the recovery appears to be stalling.
The Bank of Japan’s quarterly tankan business survey released yesterday showed a reading of 15 last month, up from 12 in March, for large manufacturers. Among large non-manufacturers it was 23, versus 19 previously.
Large companies plan to boost their capital investment by 9.3 percent from a year earlier, revised up from minus-1.2 percent in March, the survey showed.
In contrast, conditions in export-reliant South Korea continued to deteriorate, with exports falling for a sixth straight month last month and manufacturing activity shrinking at the fastest pace in nearly three years.
Adding to the nation’s woeful performance is the outbreak of the deadly Middle East respiratory syndrome (MERS) since late May, which has prompted some analysts to trim their economic growth forecast for the year and pushed the government to announce a US$13 billion fiscal stimulus package last week.
Barclays PLC analysts were more upbeat.
“We see some silver linings that could pave the way for [South] Korean exports to stabilize in Q3,” they wrote in a note to clients, citing a strong rise in US consumer confidence and signs that its shipments to China appeared to be bottoming.
However, reports from Taiwan and Indonesia provided a more sobering read that still pointed to challenging conditions for many economies in the region.
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