Factory activity eases across Asia as China economy cools

A worker checks wheels at a factory in Lianyungang in China's Jiangsu province. China's manufacturing activity contracted last month, official data showed.
A worker checks wheels at a factory in Lianyungang in China's Jiangsu province. China's manufacturing activity contracted last month, official data showed.PHOTO: AGENCE FRANCE-PRESSE

Weakest readings in years for several countries; talk of potential rate cuts in some

HONG KONG • Factory activity shrank across much of Asia last month, falling to the weakest in years in several countries and adding to worries that trade tariffs and cooling demand in China pose an increasing threat to global growth.

The weak Purchasing Managers Index (PMI) readings reinforce expectations that central banks in Asia will put any further interest rate hikes on hold this year.

In some countries, such as China, Australia and India, there is even talk of potential rate cuts.

Trade-focused Asia appears to be suffering the most visible loss of momentum so far, but the euro zone economy is stuck in low gear and many emerging markets are sputtering.

The United States economy, while a bit wobbly of late, still looks set to post solid growth, though softer than last year's pace.

That puts pressure on Beijing to come up with more stimulus measures at its upcoming parliamentary meeting next month and find common ground with the US to prevent their trade war from escalating, with a truce expiring next month.

"The slowing down of the manufacturing sector in Asia continues," said Ms Irene Cheung, Asia strategist at ANZ. "A lot depends on whether the US and China come to a reasonable deal. Then we can actually avert this potential trade recession. But at the moment, it's all tentative," she added.

US President Donald Trump said on Thursday he will meet with Chinese President Xi Jinping soon to try to seal a comprehensive trade deal as he and his top trade negotiator both cited substantial progress in two days of high-level talks

Mr Trump, speaking at the White House during a meeting with Chinese Vice-Premier Liu He, said he was optimistic that the world's two largest economies could reach "the biggest deal ever made".

Meanwhile, bleak factory gauges suggest that the global economy will get worse before it gets better.

China's factory activity shrank by the most in almost three years last month as new orders slumped further and output fell, the private Caixin/Markit PMI survey showed yesterday.

The numbers were weaker than Thursday's official PMI survey.

Taiwan posted its weakest readings since September 2015, South Korea the joint-lowest since November 2016 and Indonesia, the first contraction in a year.

Japan's factory activity was the slowest in 29 months, with weakening exports and output suggesting it could soon fall into contraction. Manufacturers in the world's No.3 economy face both falling exports and a likely slump in domestic demand when the country's sales tax is hiked in October.

Freight rates for dry-bulk and container ships, carriers of most of the world's raw materials and finished goods, have plunged over the last six months.

The Baltic Dry Index, a measure of ship transport costs for materials like iron ore and coal, has fallen by 47 per cent since mid-2018, when the main tariffs were imposed.

The International Monetary Fund last week cut its world growth forecasts for this year and next, and said failure to resolve protectionism could further destabilise the slowing global economy.

Those concerns were reinforced on Monday by sales warnings from Caterpillar and Nvidia Corp, coming on the heels of similar alarms raised by Apple Inc, FedEx Corp and a host of chipmakers.

China watchers typically advise taking data early in the year with a pinch of salt, suspecting the trends may be distorted by the timing of the Chinese New Year holidays.

Many firms scale back operations or close for long periods around the holidays, which begin on Monday this year. However, workers, business owners and labour activists have told Reuters that companies are shutting earlier than usual as the trade war bites, with some likely to close for good.

So far, China has fast-tracked infrastructure projects, cut taxes and pumped liquidity into the financial system to help keep cash-starved firms afloat. It has also been guiding down borrowing costs.

REUTERS

A version of this article appeared in the print edition of The Straits Times on February 02, 2019, with the headline 'Factory activity eases across Asia as China economy cools'. Print Edition | Subscribe