Factory activity, export orders fall across Asia; no quick rebound seen

TOKYO • Asia's economic outlook turned gloomy as factory activity and export orders weakened across the region last month, with analysts expecting no quick rebound amid simmering global trade frictions.

In a sign that corporate sentiment was taking a hit from worries over protectionism, manufacturers' activity slipped last month in economies as varied as Indonesia, Taiwan and South Korea, the IHS Markit Purchasing Managers' Index showed yesterday.

While factory activity rose slightly in China, new export orders extended their decline in a further blow to a sector already hurt by Sino-US trade frictions.

The IHS Markit survey results came on the heels of data out earlier yesterday showing a sharp slowdown in Japan's capital expenditure, which had been considered a key driver of the export-reliant economy.

Asian shares rallied after US and Chinese leaders meeting at the Group of 20 summit in Argentina agreed on a truce in their trade conflict, offering some reassurance on the global economic outlook.

But analysts said the 90-day deadline the two sides agreed upon to reach a deal meant a conclusive resolution of the row remained distant.

"There's a quite huge risk the Sino-US trade war will intensify again after the 90-day truce, weighing on the global economy," said chief market economist Yoshimasa Maruyama at SMBC Nikko Securities. "The Sino-US trade war remains the biggest risk for global economic prospects."

GLOOMY FORECAST

The contraction in July-September GDP could be deeper than the preliminary reading. External demand has been weakening since the start of this year on slowing global growth, so it's hard to expect Japan's economy to strengthen much. The economy will likely stall for the time being. 

SENIOR MARKET ECONOMIST TORU SUEHIRO, from Mizuho Securities, on the outlook for Japan's economy.

The downbeat readings backed last Friday's official Purchasing Managers' Index survey last month showing growth in China's vast factory sector sliding to its lowest in more than two years.

South Korean factory activity last month contracted again after two brief months of growth as new export orders shrank by the most in over five years, a sign of increasing pressure on businesses from slowing global demand.

A revised survey showed Japan's manufacturing activity expanded last month at the slowest pace in more than a year as growth in new orders slowed, a worrying sign that economic expansion may be muted in the fourth quarter.

"The underlying picture remains subdued, with momentum tilting towards a slowdown," said Mr Joe Hayes, an economist at IHS Markit, which compiles the Purchasing Managers' Index.

Japan's economy shrank an annualised 1.2 per cent in the July-September quarter, as natural disasters and slowing global demand hurt factory output and exports.

Many analysts expect Japan's economy to rebound in the current quarter, but warn that the expected upturn could be weaker than expected as the fallout from trade frictions broadens.

Yesterday's capital expenditure reading could mean revised gross domestic product (GDP) data due next week will show the economy shrank more than first calculated, analysts say.

"The contraction in July-September GDP could be deeper than the preliminary reading," said senior market economist Toru Suehiro at Mizuho Securities. "External demand has been weakening since the start of this year on slowing global growth, so it's hard to expect Japan's economy to strengthen much. The economy will likely stall for the time being."

REUTERS

A version of this article appeared in the print edition of The Straits Times on December 04, 2018, with the headline 'Factory activity, export orders fall across Asia; no quick rebound seen'. Print Edition | Subscribe