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Asia Factory Activity Still Sluggish

Asia Factory Activity Still SluggishAsia Factory Activity Still Sluggish

Asia’s factories showed few signs of returning to health last month, as torpid activity in the region’s biggest economies—China and Japan—suggested world demand remained fitful at best, even as global policymakers scrambled to restore momentum.

Coming a week after the United States posted sluggish second-quarter growth, Asia’s uninspiring manufacturing surveys may give US Federal Reserve chair Janet Yellen pause for thought ahead of a Fed meeting from Sept 20-21 to decide whether to raise interest rates, Reuters reported.

Moreover, the impact of Britain’s shock decision in June to quit the European Union is seen chilling consumption, leaving factories struggling to clear their goods.

In China, the world’s second-biggest economy, factory activity showed scant growth.

The official Purchasing Managers’ Index ticked up to 50.4 last month, compared with the previous month’s 49.9 and just above the 50-point mark that separates growth from contraction.

But the private Caixin version of the PMI, which covers a greater share of smaller firms, showed activity stagnated last month with the index at 50.0, from an unexpectedly upbeat 50.6 in July.

“Downward pressure on China’s economy remains and government support to stabilize growth must continue,” said CEBM Group macroeconomic analysis director Zhong Zhengsheng, in a note accompanying the Caixin PMI report.

Indeed, with central banks almost exhausting their monetary policy support, governments in Asia have increased fiscal stimulus, although underlying demand in many of the region’s export-reliant economies remain weak.

In Japan, while manufacturing activity showed signs of steadying, the IHS Markit/Nikkei PMI was still in contraction at 49.5 last month, versus 49.3 in July.

Export orders continued to fall, even as output increased for the first time in six months, backing expectations that the Bank of Japan will need to offer more stimulus on top of its already massive easings to revive a sputtering economy. The pressure on Japanese policymakers was underscored by separate data showing Japanese business expenditure fell in the April-June period from the previous quarter.

Conditions were even more gloomy in South Korea, a bellwether for global demand.

An extended slide in exports put manufacturers in Asia’s fourth-largest economy to the sword, with the August PMI contracting at its fastest pace in a year.

Financialtribune.com