Asian factory activity contracted further last month, fueling worries that a Sino-US trade dispute and a slowdown in China could tilt the world toward a global recession, which central banks would have to fight with depleted ammunition.
Purchasing managers’ indices (PMI) showed manufacturing activity contracting in China for a second consecutive month, while export driven economies in north Asia — Taiwan, Japan and South Korea — have been in pain for longer.
Among the emerging market economies of Southeast Asia, Indonesia registered a contraction, but others have benefited from a redirection of trade flows away from China.
“The numbers have been bad for a couple of months already,” said Irene Cheung (張雅怡), Asia strategist at Australia & New Zealand Banking Group Ltd.
“Things seem to be stabilizing a little bit, but they’re not recovering, the trade tensions are still there. We don’t see good news on the growth front yet. We expect [more] interest rate cuts in the region,” she said.
In China, the Caixin/Markit Manufacturing PMI rose to 49.9 from 49.4 in June, remaining below the neutral 50-mark dividing expansion from contraction on a monthly basis.
The readings were largely in line with an official gauge that showed factory activity last month shrank at a slower-than-expected pace.
Analysts said the numbers reflected some impact of recent stimulus by Chinese authorities, but the manufacturing outlook remained a source of concern as a trade conflict with the US was expected to drag on.
Elsewhere in Asia, the streak of contraction in Taiwan reached its 10th month, while Indonesia saw its first below-50 number in six months.
Japanese manufacturing deteriorated for a third month last month, while South Korea’s factory activity contracted further, with new export orders shrinking at its fastest pace in nearly six years.
In India, where the economy relies more on domestic demand, manufacturing growth accelerated slightly. Vietnam, Philippines and Thailand also saw mildly positive growth.
Separately, Hong Kong’s central bank cut its base rate for the first time in a decade, as its currency peg to the US dollar forces the monetary authority to move in lock-step with the US Federal Reserve.
The financial hub’s economy grew by a less than expected 0.6 percent in the second quarter from a year earlier, mainly affected by slower global trade.
However, an increasingly violent cycle of pro-democracy protests in the territory is beginning to take a heavy toll on retail and tourism, and could bring the economy to a halt in coming quarters.
“Eight consecutive weeks of mass protests since early June have already brought immediate disruption to inbound tourist arrivals, retails sales and the property market,” BofA Merrill Lynch analysts said in a note.
“We expect to see more evidence of adverse impact in the third quarter,” they said, adding that they revised their full-year growth forecasts to 0.8 percent for this year and 0.7 percent for next year, from previous estimates of 2.2 percent and 2.7 percent respectively.
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