Asian factories rev up, but Trump's trade threat hovers

The Trump factor, allied with a stronger US dollar as the Federal Reserve starts to raise interest rates at a faster pace, could knock global economic growth, and hurt Asian manufacturing and exports.
The Trump factor, allied with a stronger US dollar as the Federal Reserve starts to raise interest rates at a faster pace, could knock global economic growth, and hurt Asian manufacturing and exports.PHOTO: REUTERS

BEIJING/TOKYO • Factories in China and Japan started 2017 on a positive note in a sign the global manufacturing revival is carrying through from late last year, but rising protectionism in the United States threatens to snuff out a nascent recovery in Asian exports.

As global growth gathered momentum over the past year, thanks to a bounce in consumption, businesses have ramped up production in a boon to worldwide trade and investment.

That has shown up in major economies like Japan, where manufacturing activity expanded in January at the fastest pace in almost three years as export orders surged, Markit/Nikkei purchasing managers' index (PMI) numbers show. The PMI rose to 52.7 in January from 52.4 in December, the index for new export orders came in at a solid 53.1, indicating the fastest gain in 12 months - a welcome sign for the economy.

In China, the world's second-biggest economy, factory activity expanded for the sixth month in December, according to an official PMI survey, led by an investment and construction boom that has helped spur global growth.

The official PMI stood at 51.3 in January, slowing marginally from 51.4 in December, but above the 50-point mark that separates growth from contraction.

But the fairly solid underlying numbers belied the growing uncertainty stoked by rising protectionism in the US. Indeed, in export-reliant Asia, and other regions where global supply chains are closely inter-linked, the election of Mr Donald Trump as US President has emerged as a major risk to world trade and broad economic growth.

"The uncertainty surrounding future market access to the US is bound to weigh on investment activity as companies await regulatory certainty," said Mr Frederic Neumann, co-head of Asian economic research at HSBC in Hong Kong.

  • JANUARY'S PMI

  • CHINA

    51.3

  • JAPAN

    52.7

The Trump factor, allied with a stronger US dollar as the Federal Reserve starts to raise interest rates at a faster pace, could knock global economic growth, and hurt Asian manufacturing and exports.

Analysts warn that a slowdown in Chinese economic growth and a pullback in stimulus in the Asian economic powerhouse could also hit demand across the region.

China's manufacturing sector has been buoyed by a government infrastructure-building spree and a housing boom. But some analysts question whether the growth will be sustainable once the impact of earlier stimulus measures begins to wear off and the property market starts to cool.

In Japan, those encouraging signals sit uncomfortably against the growing threat from Mr Trump's policies. The upshot of all of this, analysts say, is that global businesses face a bumpy ride.

"Things like PMI are timely indicators of the hard data but sometimes they do run ahead, and the improvement in actual data doesn't materialise," said Mr Louis Kuijs of Oxford Economics in Hong Kong.

REUTERS

A version of this article appeared in the print edition of The Straits Times on February 02, 2017, with the headline 'Asian factories rev up, but Trump's trade threat hovers'. Print Edition | Subscribe