Manufacturing activity surged across Asia last month as demand picked up, although plans by Japanese manufacturers for record cuts in capital spending cast doubts on the strength of a recovery in the industrialized world.
A surprise slowdown at US Midwest factories also suggested the road back to global economic health will be a rocky one, even if Asia powerhouses such as China continue to build up steam.
The world economy is finally stirring from a deep recession led by a swift turnaround in Asia, the IMF said yesterday, raising its forecast for global economic growth next year.
After a year of being downbeat about prospects for the world economy, the IMF’s latest World Economic Outlook declared the global recession is ending.
“The global economy appears to be expanding again, pulled up by the strong performance of Asian economies and stabilization or modest recovery elsewhere,” the IMF said.
The IMF said it now expects the world economy to contract by 1.1 percent this year before growing by 3.1 percent next year. This is more upbeat than its last update in July when the fund projected the world economy would shrink 1.4 percent this year, before expanding 2.5 percent next year.
Still, it cautioned the pace of a recovery is expected to be sluggish for some time and the biggest risk is if governments withdraw support measures too soon, causing growth to stall.
Highlighting that wary outlook, the Bank of Japan’s Tankan Survey showed big manufacturers plan to cut capital spending by a record 25.6 percent in the fiscal year through March 31, more than indicated in a June survey.
Capital spending typically has been a key growth driver for Japan’s economy, but is now one of its weakest links as companies cut expenditures to protect fragile profits.
A recent string of surprising weak US economic reports, meanwhile, is casting fresh doubts about a rebound in consumer demand that is vital for a strong global recovery.
Surveys on Wednesday showed activity at US factories in the nation’s heartland slowed last month while private employers cut more jobs than expected, which could weigh on confidence.
“What it comes down to is how much of this recovery is going to be sustainable. I’m not a believer yet that this is a robust economy. This is going to be a very frustratingly weak growth period,” said Robert MacIntosh, chief economist at Eaton Vance Corp in Boston.
By contrast, much of Asia continues to gather strength.
Factories ramped up production in China, Japan, South Korea, India and Australia last month with new orders picking up from buyers at home and abroad. Some Asian companies such as Japanese construction equipment maker Komatsu have reported a sharp rise in sales to China in particular as its growth jumps.
China’s manufacturing activity expanded for a seventh month last month, official data showed yesterday, largely in line with a private survey on Wednesday.
The official purchasing managers’ index (PMI) rose to 54.3 from 54 in August, the strongest reading in 17 months, the China Federation of Logistics and Purchasing said.
The report was fresh evidence that growing domestic demand in China is helping to offset weak exports, though some analysts worry the economy is still too reliant on government stimulus as the main way to generate activity.
In South Korea, the HSBC/Markit manufacturing Purchasing Managers’ Index showed activity expanding for a seventh month, though the rate of growth eased slightly to 52.7 from 53.6 in August. Separately, exports last month fell 6.6 from a year earlier, much less than expected.
In India, the HSBC Markit Purchasing Managers’ Index based on a survey of 500 companies, advanced to 55 last month from 53.2 in August, while the Australian Industry Group/PriceWaterhouseCoopers Performance of Manufacturing Index rose 0.3 points to 52.0.
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