Regional News
Industrial production in Japan and South Korea fell short of expectations in July, the latest sign Asia’s manufacturing sector may be losing momentum due to softening U.S. and European demand.
Japanese industrial output in July was up 0.6% from the previous month, a fourth straight month of expansion, the Ministry of Economy, Trade and Industry said Wednesday. But the median forecast of economists by Nikkei and Dow Jones Newswires was 1.5%.
Japanese companies surveyed by the ministry said on average they expect to cut production by 2.4% in September after a 2.8% increase in August.
In Korea, industrial production in July was up 3.8% from a year earlier, its slowest rate of growth since September 2010, and well short of economists’ 6.6% forecast. Compared with the previous month, seasonally adjusted output was down 0.4%, Statistics Korea said.
“Downside risks to our economy are increasing as external conditions deteriorate,” South Korean Finance Minister Bahk Jae-wan said before a policy meeting. “But the trend of gradual economic recovery will continue given exports and domestic demand conditions.”
UBS Securities economist Takuji Aida said the increase in Japan’s output in July indicates quick progress in restoring supply chains damaged by the March 11 disasters.
Manufacturers “are nearly finished catching up,” he said. “Now the more important factor is the outlook for the global economy, and the September production forecast showing a contraction underscores how manufacturers are becoming more cautious.”
The Japanese and Korean data are the latest sign that Asia’s economy may be losing steam. The gross domestic product of Singapore—one of the region’s most trade-dependent economies—fell in the second quarter. Growth in the Philippines slowed to 3.4% in second quarter from 4.9% in the first quarter, missing expections, due to a sluggish services sector, lackluster external trade and a double-digit contraction in construction.
Purchasing managers indexes for China, Korea, India and Taiwan, due Thursday, will give economists a clearer picture of the broader trends for the region’s economy. Many countries have focused on bringing down inflation in recent months, but some economists say priorities may soon shift to supporting growth, especially if the U.S. economy enters a double-dip recession.
Still, the data Wednesday weren’t all downbeat.
Korea’s Ministry of Strategy and Finance said exports between Aug. 1 and Aug. 29 were up 22.9% from a year earlier, following July’s 25.2% rise, indicating demand for local manufacturers’ goods remained firm despite economic problems in major customers U.S. and Europe.
Woori Investment economist Sun Yoo said the weak Korean output reading in July indicates manufacturers’ reducing inventory in response to the uncertain global outlook. He said such behavior will likely have continued in August, but added that such a decline in output won’t pose any serious threat to overall economic growth.
“It’s true that growth in the second half of this year hasn’t been as strong as expected,” he said. “It’ll be hard to achieve the 4.5% growth that the government’s forecasting (for 2011), given that first-half growth was already weaker than what they anticipated. The government will need to adjust the target to reflect realities.”
Correction
South Korean exports between Aug. 1 and Aug. 29 were up 22.9% from a year earlier, compared with July’s 25.2% rise. An earlier version of this article incorrectly reported that 22.9 is larger than 25.2.
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By: Martin Vaughan, Se Young Lee, and Tatsuo Ito
Source: The Wall Street Journal, Sept. 1, 2011
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