Home / International/ Asian factories kick off 2018 on strong note, but inflation still missing

Asian factories kick off 2018 on strong note, but inflation still missing

Comments / {{hitsCtrl.values.hits}} Views / Wednesday, 7 February 2018 00:00

HONG KONG (Reuters): Asia’s factories got off to a strong start in 2018, with manufacturing activity in many countries gaining momentum and hitting multi-year highs as global demand for hi-tech products remained strong.

Business surveys in Europe and the United States later on Thursday were also expected to show solid factory activity, reinforcing expectations of another year of synchronised global growth that has propelled stock markets to record highs.

Global policymakers are hoping that rosy scenario may finally translate into higher wages, spurring stronger domestic demand and inflation, which has been strangely absent from the recovery so far despite years of massive central bank monetary stimulus.

The Federal Reserve said on Wednesday that inflation was likely to pick up this year, bolstering expectations that US interest rates will continue to rise, while the Bank of England said price growth was back on the agenda.

But official inflation data in Asia has remained tepid, even as business surveys suggest companies are charging their customers more to recoup rising input costs.

South Korea on Thursday posted its lowest inflation rate in 17 months, and prices are growing less than expected in Australia and New Zealand.

“The pick-up in manufacturing activity does not necessarily have to reflect in domestic inflationary pressures as they include non-tradeable sectors,” said Trinh Nguyen, senior economist at Natixis in Hong Kong.

“(Asian) currencies have been strong, and there is still some weakness in domestic demand, particularly in the ageing east Asian countries such as Singapore and South Korea.”

Nguyen added this will make Asian central banks generally less aggressive than the Fed, with Malaysia and Philippines, where domestic demand has been strong due to pre-election spending in the former and accelerated infrastructure investment in the latter likely to lead the way in rate hikes.

In light of the subdued South Korean inflation data, ING economists cut their forecasts for rate hikes in that country this year to only one from two previously, and not until the fourth quarter.

Tech trade

The strongest manufacturing readings in Asia on Thursday came from tech exporters, which continue to ride a robust semiconductor cycle driven by upgrades in smartphones, industrial robots, cars, and, more recently, demand for computing machines used to mine cryptocurrencies like bitcoin.

In Japan, the Markit/Nikkei Purchasing Managers Index (PMI) rose to 54.8 in January, the highest in four years.

Taiwan’s reading rose to its highest since April 2011, while South Korean factory activity bounced back into expansion territory as domestic and export orders picked up. Levels above 50 suggest growth on a monthly basis.

Even in China – where authorities are cracking down on air pollution and excessive financial risks – factory growth last month appeared generally resilient, though economists agree the crackdowns will start to weigh on activity eventually.

The private Caixin/Markit PMI was steady at 51.5, matching December’s reading and better than economists at expected, though official data on Wednesday suggested a slight softening as export orders faltered.

A clearer picture of China’s manufacturing activity and its actual demand may not emerge until spring when winter smog restrictions are lifted and construction revives.

“Overall, we expect Asian manufacturing conditions to remain healthy, supported by robust external demand and accommodative domestic monetary policy,” said Krystal Tan, Asia economist at Capital Economics.

Risk of protectionism

However, the outlook for Asia’s export-reliant economies remains clouded by worries about US trade protectionism as the Trump administration starts translating last year’s tough talk into action.

Washington slapped steep import tariffs on washing machines and solar panels last week, drawing protests from Beijing and Seoul, and US officials suggest other measures are on the way.

While such steps could hurt growth, HSBC Private Banking’s head of investment strategy for Asia Cheuk Wan Fan said there was no reason to panic as Asian countries trade more with each other than in the past and are less reliant on the United States.

Individual companies were therefore more at risk than the wider economic picture.

“When we look at the risk arising from US protectionism and trade in-fighting, we adopt a bottom-up approach in identifying potential victims,” she said. “We will avoid these companies which heavily rely on US export markets.”


Share This Article


1. All comments will be moderated by the Daily FT Web Editor.

2. Comments that are abusive, obscene, incendiary, defamatory or irrelevant will not be published.

3. We may remove hyperlinks within comments.

4. Kindly use a genuine email ID and provide your name.

5. Spamming the comments section under different user names may result in being blacklisted.


Today's Columnists

Overlooking systemic crises: Subjecting to neoliberalism and potential hegemon – Part 3

Wednesday, 23 May 2018

Renegotiating a country’s position within the world-economy is only possible when the system and/or leaders are in trouble

Annuity-based PPP can expedite infrastructure developments

Tuesday, 22 May 2018

Sri Lanka has primarily relied on public finance for the development of public goods and infrastructure. While running

Is there value in surveillance? Ask the Chinese

Tuesday, 22 May 2018

Global commentary would suggest that surveillance (whether offline or online) casts a shadow on personal freedoms and any conversation that involves such spy games quite quickly descends into a 1984-esque discussion about dystopian futures. However,

Mangala’s Gam Peraliya: Good move but essential requirement a village level database

Monday, 21 May 2018

Finance Minister Mangala Samaraweera, announcing the Government’s decision to move for a flexible fuel price system based on international prices built into a pricing formula, made a side announcement as well.

Columnists More