World Economy

Asian Factories Hit Hard

Asian Factories Hit HardAsian Factories Hit Hard

Manufacturing activity across much of Asia shrank in February with China suffering a seventh straight month of decline, a blow to policymakers who only a day earlier resumed an easing cycle in a fresh effort to spur growth.

Business surveys from China to Indonesia showed no signs of reversing a weakening trend, forcing factories in the trade-reliant region to shed yet more jobs and cut prices, a move that could worsen a global disinflationary trend, CNBC reported.

Asia’s grim readings will sharpen the focus of officials in the world’s leading economies who declared at a weekend G20 meeting that they needed to look beyond ultra-low rates and printing money to reanimate growth.

Economists at Citi said last week that the chances of a global recession—which it defines as global growth falling below 2%—are rising.

China aims to lay off 5-6 million workers from “zombie enterprises” over the next two to three years, two sources with ties to the country’s leadership told Reuters.

Australia’s central bank governor, Glenn Stevens, observed on Tuesday that conditions have become more difficult for a number of emerging market economies and noted that “China’s growth rate has continued to moderate.

Japan’s factories saw their weakest growth in eight months, while Indonesia and Malaysia contracted for the 17th and 11th month respectively, according to survey compiler Markit. Taiwan went into reverse gear for the first time in three months as orders wilted.

India was perhaps the only standout, and for merely maintaining modest growth driven by cutting prices to attract demand.

A private survey, the Caixin/Markit China PMI, which focuses on small and mid-sized companies, fared no better, falling to 48.0, from 48.4, and undershooting market expectations of 48.3.

The data are a taster for European and United States surveys later in the day, with growth in manufacturing activity likely static in the eurozone and contracting across the Atlantic.

“One risk is that developed world businesses pull back in the face of rising currencies, weak productivity, and sub-par emerging market demand.

“Central banks recognize these risks, and experience shows that they respond quickly to weakness in their industrial sectors, even when it isn’t a precursor to recession,” wrote Bruce Kasman, head of economic research at JPMorgan.

“Based on past experience, JPMorgan suspected the continued stagnation of manufacturing could result in a full percentage point of monetary easing in one form or other.” The official version of China’s PMI survey for manufacturing slipped to 49.4 in January, from 49.7 the month before and short of forecasts of 49.6.