Asian manufacturing expands further, but China remains a risk

HONG KONG • Asia's major manufacturing economies saw their fastest expansion in factory activity in years last month, driven by robust demand for electronics and firming the case for central banks in the region to shift to tighter monetary policy next year.

A raft of mostly strong factory activity surveys released yesterday comes a day after the Bank of Korea became the first major central bank in Asia in three years to raise interest rates. The tightening marks a potential turning point for the region, with Malaysia and the Philippines among central banks that could lift rates next year.

The firm expansion in factory activity, seen in South Korea, Japan and Taiwan, has not been uniform, however, with Beijing's war on pollution tempering growth in Chinese manufacturing in October.

Analysts expect any tightening by Asian central banks to be gradual and to follow the lead in the United States, which is expected to hike again next month and three more times next year. US and euro zone manufacturing surveys later in the day are expected to show higher growth rates than in Asia.

"We're seeing the strong momentum in the third quarter carrying over in the fourth," said head of Asia research Khoon Goh at ANZ. "The improving global backdrop... suggests that central banks in this region will start policy normalisation. It's important to note this is not the start of an outright tightening cycle, this is the removal of very accommodative policies."

Elsewhere in Asia, India saw gross domestic product growth rebound in the three months to September, a sign businesses are recovering from disruptions caused by the launch of a national sales tax and a shock ban on high-value banknotes.

China, however, remains one of the biggest risks to global growth, analysts say. It has defied market expectations with economic growth of 6.9 per cent in the first nine months of the year, supported by a construction boom and robust exports. But Beijing's efforts to reduce air pollution have led to cooling in factory activity in recent months.

The Caixin/Markit Manufacturing Purchasing Manager's Index dipped to 50.8, compared with 51 in October and a 50.9 forecast. While staying above the 50-point mark that divides growth from contraction on a monthly basis, the index edged down to its lowest level in five months.

REUTERS

A version of this article appeared in the print edition of The Straits Times on December 02, 2017, with the headline 'Asian manufacturing expands further, but China remains a risk'. Print Edition | Subscribe