Regional News
Manufacturing activity across Asia slowed in August, offering more evidence that weaker demand in the developed world and tighter monetary policy locally is weighing on the region’s economies.
Purchasing-managers indexes for August from two bellwether economies for global trade—South Korea and Taiwan—dipped below 50, indicating activity contracted, an early sign that softness in the U.S. and Europe is feeding through globally. Both economies are heavily leveraged to demand in the West, especially for technology goods. A PMI reading above 50 indicates an expansion in manufacturing activity, while a reading below 50 indicates contraction.
In China, Asia’s largest economy, manufacturing held steady though a measure of exports fell, slipping into contraction for the first time since April 2009. China’s official government-calculated manufacturing index rose in August for the first time in four months—to 50.9, from 50.7 in July—while an index provided by HSBC rose slightly to 49.9. The government’s survey said the subindex measuring new export orders fell to 48.3 from 50.4 in July.
“While Asia is growing, it’s not growing as much,” said Hans Hickler, Asia-Pacific chief executive for Agility, adding that the global logistics company is not seeing “aggressiveness,” especially among technology clients. Agility manages shipments and warehousing of manufactured goods, making it among the first to see changes in trade patterns.
HSBC’s PMI for Taiwan slumped for the third consecutive month to 45.2 as new orders continued to fall.
The slower manufacturing indicators come as inflation remains elevated across much of the emerging world, posing a dilemma for policy makers caught between a desire for accommodative conditions to spur economies and a need to tighten policy to keep prices under control.
South Korea is a case in point. Its HSBC PMI reading turned negative in August for the first time in 10 months, falling to 49.7 from 51.3 in July. Meanwhile, data on the critical export sector—the first August numbers for the region—remained robust. Inflation soared to a three-year high, with the consumer-price index up 5.3% from the year earlier.
“These conflicting signals are quite common in inflection points, where economies go from strong growth to slowdown,” said Frederic Neumann, economist for HSBC in Hong Kong. “The question is, How strong is the slowdown?”
That the activity indicators in Asia haven’t slid more sharply confirms the view of some that whatever economic slowdown the world is experiencing is having a moderate effect so far.
“It’s clear the bottom is not falling out. Growth is still positive. There’s no reason to think we are entering a hard landing,” said Mr. Neumann. “A prolonged slowdown that’s not too deep is in fact quite useful to address the incipient inflation pressure.”
Thailand reported consumer prices up 4.3% in August from a year earlier, more than expected. Recent floods exacerbated inflation by driving food prices higher.
Brazil, another emerging economy caught between high inflation and fears of a slowdown, surprised markets by cutting its benchmark rate late Wednesday—making growth a priority after having raised rates five times since the beginning of the year.
Credit Suisse on Thursday followed Goldman Sachs, Morgan Stanley and other banks in downgrading its outlook for Asia, calling the region “highly susceptible” to a slowdown in the West. It lowered its 2012 growth target for Asia (excluding Japan) to 6.9%, from 7.2%.
The China manufacturing surveys showed there could be a rebound in coming months. Manufacturers are stocking up again on inputs such as raw materials, presumably destined for a ramp up in production. And final inventories also declined in August.
A major public-housing construction program is kicking into higher gear and car sales, which had stalled earlier this year, have perked up thanks to government buying incentives, rising incomes and strong employment.
Local conditions, especially in countries where central banks have had to raise interest rates aggressively to fight inflation, are squeezing some important businesses.
India’s largest auto maker by sales, Maruti Suzuki Ltd., said Thursday that sales in August were down from a year earlier for the third straight month—to 91,442 vehicles, off 13%. Domestic sales were off 17% to 77,086, while exports were up 19% to 14,356.
India’s auto-components industry said this week it expects growth to slow to around 12% to 15% in the current fiscal year, which runs through March 2012. That’s after a 34% expansion in the previous year.
Rising interest rates and gas prices put “some degree of moderation in the sentiment,” said Vinnie Mehta, executive director of India’s Automotive Component Manufacturers Association.
A question mark for global production is how the recovery in Japan’s auto industry will effect manufacturers. Disruptions in automotive supply chains following the March earthquake rippled through manufacturers and dealers as far away as the U.S. and Europe.
With the second half of the fiscal year starting in a month, Japanese car makers remain poised to increase production to make up for output lost after the earthquake, said Toshiyuki Shiga, Nissan Motor Co.’s chief operating officer and chairman of the Japan Automobile Manufacturers Association.
“What I hear from our [overseas] dealerships, they are not expecting the market to drop. They are all upbeat,” he said at an association media briefing.
Dealers that sell the Japanese makers’ cars are still short of vehicles, with some customers waiting. For example, he added, dealers in the U.S. are not in a fierce discounting war, as they often are when demand is becoming sluggish.
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By: Martin Vaughan and Alex Frangos with a contribution by Kenneth Maxwell
Source: The Wall Street Journal, Sept. 1, 2011
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