Asia factory activity sputters as trade woes hit export orders

A steel worker at a plant in Dalian, Liaoning province. Two surveys from China on Sunday pointed to weakening in its manufacturing sector as domestic demand falters and US tariffs bite.
A steel worker at a plant in Dalian, Liaoning province. Two surveys from China on Sunday pointed to weakening in its manufacturing sector as domestic demand falters and US tariffs bite.PHOTO: REUTERS

TOKYO • Factory activity in Asia weakened last month, with many trade-reliant economies seeing a slump in export orders in a sign that escalating US-China tensions are taking a toll on business confidence.

Rising raw material costs are also squeezing profit margins for Asian manufacturers, raising questions over future investment and reinforcing views that global economic growth is shifting into lower gear.

Business surveys released on Sunday and yesterday pointed to deteriorating conditions across much of the region last month, with gauges of future activity offering little hope for a turnaround in the next few months.

Some of the immediate gloom will be dispelled by news that the United States and Canada had clinched a last-gasp deal on Sunday to salvage the North American Free Trade Agreement, removing one major near-term risk to the global outlook.

But that did little to ease concerns in Asia over further signs of cooling in China's economy and the risk of collateral damage for its neighbours as the trade war between Washington and Beijing grinds on.

Two surveys from China on Sunday pointed to weakening in its vast manufacturing sector.

A private poll showed factory growth stalled after 15 months of expansion, while an official gauge confirmed the sector was losing steam under the weight of shrinking export orders.

The first major readings on China for last month suggest the world's second-largest economy is continuing to lose momentum as domestic demand weakens and US tariffs bite, a combination that is likely to prompt Beijing to roll out more growth-support measures in the coming months.

Elsewhere in Asia, manufacturing also faltered in Vietnam, Taiwan and Indonesia last month, with Taiwan's factories expanding at the slowest pace in more than two years on sluggish export orders, going by recent business surveys.

Major economies like Japan and South Korea saw headline activity readings hold up, but also suffered declines in export orders, suggesting that increasing protectionism and concerns of slowing Chinese demand were weighing on Asia's biggest economies.

"Global growth is now cooling, which we think is weighing on foreign demand for Chinese goods irrespective of tariffs," Capital Economics said in a note to clients.

India was among the few bright spots in Asia. Its factory activity expanded more quickly last month on strong domestic and export order growth, a welcome sign amid a sharp drop in the rupee.

While rising trade protectionism is expected to deal the world economy a modest blow this year, analysts expect risks will intensify next year as tougher US tariffs kick in and global borrowing costs rise.

Senior economist Koji Kobayashi of Mizuho Research Institute said it would take time for companies to relocate production from China to other countries. "That means the initial impact of the trade friction on Asian economies would be negative," he added.

REUTERS

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A version of this article appeared in the print edition of The Straits Times on October 02, 2018, with the headline 'Asia factory activity sputters as trade woes hit export orders'. Print Edition | Subscribe