Asia factory growth cools on weak global demand

Reuters: Growth in Asia’s manufacturing sector cooled in February as the pace of economic recovery slackened, according to factory surveys and trade data on Friday that pointed to continuing weakness in the strength of global demand.

Purchasing Managers’ Index (PMI) reports from Europe and the US due later should offer more insight into the state of the world economy.

European reports are expected to paint a picture of divergence between economic powerhouse Germany and the struggling rest of the Euro zone, while US growth is seen picking up after a weak fourth quarter last year.

China, the most closely watched of Asia’s big manufacturing economies, saw factory growth slow to multi-month lows as sluggish domestic demand added to the effect from already depressed foreign sales, two separate PMI surveys showed.

“Today’s data point to a stabilisation of economic activities in coming months, not a strong recovery of growth,” Barclay’s analyst Jian Chang referring to China’s PMIs said.

In South Korea, trade data showed a sharp fall in exports, while a PMI report from last year’s emerging market investor favourite Indonesia showed a slight improvement in manufacturing overall, but a fall in new export orders.

Factory growth was stronger in India, struggling to escape the grip of its weakest economic growth in a decade, but there too the strength came from domestic demand, with export orders remaining subdued.

China’s official PMI from the National Bureau of Statistics eased to 50.1 after seasonal adjustments in February, the weakest reading in five months and just above the 50-point level demarcating growth from contraction on a monthly basis.

A second PMI issued by HSBC fell to a 4-month low of 50.4 after seasonal adjustments, off January’s two-year high and in line with a flash, or preliminary, reading late last month.

But the bigger-than-expected retreat in the PMI’s does not signal China’s economy is slipping into another slowdown, analysts said. Instead, they show China’s growth recovery this year would be mild, as widely expected.

The Lunar New Year holiday, China’s biggest annual holiday and widely observed across much of East Asia, fell in February this year making it harder to draw firm conclusions, even though the data was seasonally adjusted.

ING in Singapore Asian economic research head Tim Condon argued China’s economic data in January and February has ‘a lot of noise’ due to the festive season.

“When it settles down we expect the data will reveal that industrial production is growing around 10%,” he said.

South Korea, a big exporter of cars and electronics whose trade data is watched closely as it is the first major exporting economy to release figures, reported an 8.6% fall in exports in February, compared with a year earlier.

“If you look at the indicators released so far, they signal that economic conditions are worse than initially anticipated,” HI Investment and Securities Seoul economist Park Sang-hyun said.

Analysts blamed the decline partly on the slide in the value of the Yen after Japan embarked on a renewed campaign to beat deflation, the spill-over effects of which have drawn complaints from Brazil to Germany amid talk of ‘currency wars’.

Weak overseas demand

Indonesia’s February PMI was 50.5, up from a 49.7 reading in January which showed the first contraction since May. But new export orders contracted for the first time since September, and at the fastest pace of decline since May.

Official trade data released on Friday showed exports improved in January, but HSBC Markit, which released the PMI survey, said anecdotal evidence suggested demand from European and American markets weakened in February.

Indian factories stepped up production last month as domestic orders poured in at a faster pace than in January, with the HSBC Markit manufacturing PMI rising to 54.2 in February, after falling to 53.2 in January.

The PMI index, which gauges business activity in Indian factories but not its utilities, has held above 50 for almost four years despite a sharp slowdown in the broader economy.

Data released on Thursday showed economic growth eased to 4.5% in the three months to December its, lowest in nearly four years and cementing expectations for a decade-low growth rate for the current fiscal year to March.

Asia’s third-largest economy has been hurt by slowing overseas demand. The new orders index rose to 56.3 last month, from 55.9 in January, but the export orders index fell for a second straight month.

Final PMI reports from the Euro zone, India’s biggest trading partner, are expected to confirm the picture from flash reports last month of a chasm opening up between core economies France and Germany.

France’s manufacturing PMI is forecast at a dismal 43.6, while the reading for the Euro zone as a whole is seen at 47.8. Germany, by contrast, is seen just above the crucial 50 line.

Twin US PMI surveys from Markit and the Institute of Supply Management are expected to come in well above 50.

Data on Thursday showing rising consumer spending and falling jobless claims suggested the US economy was picking up after growing just 0.1% in the fourth quarter.