SINGAPORE — Asia's manufacturing downturn deepened in August as China weakened
sharply, adding to pressure on central banks to do more to fight a slowdown
caused by flagging Western demand.
China's manufacturing sector—the
engine for much of Asia's economy—slumped further, with activity shrinking at
the fastest pace since the depth of the global financial crisis, HSBC
Purchasing Managers' Index data showed Monday. The slowdown was also more
severe than signaled by the preliminary HSBC data last month. The HSBC data
followed an official manufacturing PMI Saturday that signaled a contraction for
the first time since November.
Manufacturing in South Korea,
whose exports have been hit hard by weakening foreign demand, continued to
shrink in August, though less sharply. In Taiwan, which also depends heavily on
consumers overseas, the pace of contraction quickened.
India's manufacturing continued
to expand, but at a slower pace, while in Indonesia—Southeast Asia's biggest
economy—manufacturing actually picked up steam, offering a tentative positive
signal for Asia's prospects.
Asia's economy "is slowing,
perhaps a little bit more than people were planning for, but it's still
outgrowing every other part of the world," said Endre Pedersen, managing
director for fixed income at Manulife Asset Management, which manages $37
billion in Asian fixed-income investments.
"I'm not expecting to see
continued further weakness into 2013. I think it will plateau out, probably
over the next few months," he said. "But obviously, I think it's much
more dependent on how it plays out in Europe and the U.S."
The HSBC China manufacturing PMI
fell to 47.6, the lowest since March 2009, from July's 49.3, worse than the
August preliminary reading of 47.8 and below the key level of 50 that separates
expansion from contraction. With both the HSBC and official indexes signaling
contraction, the pressure Beijing for more policy easing is growing, said
HSBC's chief economist for China, Qu Hongbin.
Weakness in China's industrial
sector poses particular challenges for Australia, which has invested heavily to
develop its natural-resource sector to feed Chinese demand. With that demand
softening, prices of iron ore and other industrial commodities have fallen in
recent months, squeezing profit margins and calling into question the viability
of some future mining projects.
A reading on Australian
manfacturing remained deep in contractionary territory, with basic metals and
transport equipment among the weakest areas. Australian retail sales marked
their biggest drop in almost two years.
"Manufacturing conditions
continue to be very challenging across the sector with the high (Australian)
dollar and weakness in demand in the domestic and export markets weighing on
growth," said Innes Willox, chief executive of Australian Industry Group.
Korea's HSBC PMI ticked up in
August from July's 47.2, but at 47.5 remained well below the 50 level for a
third straight month. In Taiwan, the HSBC PMI fell to 46.1 from 47.5.
The outlook for Asia's exports
isn't good. Recent data suggest the euro zone, in a protracted debt crisis, is
sliding into recession. The U.S. recovery also remains patchy, with Federal
Reserve Chairman Ben Bernanke bolstering expectations Friday that the Fed may
pump more money into the economy to spur growth.
Korea's exports—a bellwether of
Asia's export trends—were down 6.2% in August from a year earlier, with
shipments to nearly all major global markets falling. In the first 20 days of
August, exports to China were down 5.6%, exports to the European Union were
down 9.3% and exports to the U.S. were down 2.1%.
As in China, price pressures are
decreasing in Korea: At 1.2% in August, inflation was the lowest since May
2000. This gives the Bank of Korea room to cut interest rates.
"Demand from home and abroad
continues to contract, prompting local firms to reduce output further,"
said HSBC economist Ronald Man. "With the Chinese economy yet to show
signs of a meaningful recovery, policymakers in Korea need to support domestic
demand as trade levels remain suppressed." He predicts the BOK will cut
its key rate a quarter percentage point this month.
To be sure, the signals aren't
all negative.
India's manufacturing continued
to expand, though the HSBC PMI ticked down to 52.8 in August from 52.9 in July.
There were also signs of strength
in China outside the manufacturing sector. The official non-manufacturing PMI,
which includes retail, aviation, software, real estate and construction, rose
to 56.3 in August from 55.6.
And in Indonesia, HSBC's
manufacturing PMI rose to 51.6 in August from 51.4 in July, with export orders
falling at a slower pace as the percentage of respondents who saw higher
external orders nearly doubled.
"In light of the ongoing
deterioration in PMIs around the region, Indonesia's new export orders may also
be an important leading indicator of the strength of demand across broader
Asia—it is, after all, a key supplier of raw and intermediate goods to major
markets such as China," HSBC said.
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