Factory activity in Asia weakened last month, with many trade-reliant economies seeing a slump in export orders in a sign that escalating US-China tensions are taking a toll on business confidence.
Rising raw material costs are also squeezing profit margins for Asian manufacturers, raising questions over investment and reinforcing views that global economic growth is shifting into lower gear.
Business surveys released on Sunday and yesterday pointed to deteriorating conditions across much of the region last month, with gauges of future activity offering little hope for a turnaround in the next few months.
Photo: AFP
Some of the immediate gloom might be dispelled by news that the US and Canada had on Sunday clinched a last-gasp deal to salvage the North American Free Trade Agreement (NAFTA), removing one major near-term risk to the global outlook.
However, that did little to ease concerns in Asia over further signs of cooling in China’s economy and the risk of collateral damage for its neighbors as the trade war between Washington and Beijing grinds on.
Two manufacturing surveys from China on Sunday pointed to weakening in the country’s vast manufacturing sector.
A private poll showed factory growth stalled after 15 months of expansion, while an official gauge confirmed the sector was losing steam under the weight of shrinking export orders.
Manufacturing also faltered in Taiwan, Vietnam and Indonesia, business surveys showed.
Major economies, such as Japan and South Korea, saw headline activity readings hold up, but also suffered declines in export orders, suggesting that increasing protectionism and concerns of slowing Chinese demand were weighing on Asia’s biggest economies.
“Global growth is now cooling, which we think is weighing on foreign demand for Chinese goods irrespective of tariffs,” Capital Economics Ltd said in a note to clients.
India was among the few bright spots in Asia. Its factory activity expanded more quickly last month on strong domestic and export order growth, a welcome sign as policymakers worry about a sharp drop in the rupee and fallout from global trade frictions.
While rising trade protectionism is expected to deal the world economy a relatively modest blow this year, analysts expect risks to intensify next year as tougher US tariffs kick in and global borrowing costs rise.
“Countries that saw their currencies slump may be suffering from rising import costs. There are also signs China’s slowdown and the trade friction are starting to hurt sentiment,” said Koji Kobayashi, senior economist at Mizuho Research Institute.
“It would take time for companies to relocate production from China to other countries. That means the initial impact of the trade friction on Asian economies would be negative,” Kobayashi said.
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