World Economy

Asian Factories End Strong 2017 on Mixed Note

Asian Factories End Strong 2017 on Mixed NoteAsian Factories End Strong 2017 on Mixed Note

Asia’s factories ended a strong 2017 on a mixed note, with activity at multi-year highs in Taiwan and surprisingly picking up in China, but contracting in some economies in a sign that any interest rate hikes in the region will be slow and gradual.

A trend of synchronized global growth that became apparent over the course of last year looked set to continue, with activity surveys in the eurozone and the United States later in the day expected to post strong readings, Reuters reported.

In China, manufacturing growth unexpectedly picked up to a four-month high in December amid a surge in new orders, suggesting continued strength in global trade. The Caixin/Markit Manufacturing Purchasing Managers’ Index rose to 51.5 last month, from 50.8 in November, and far outpaced economists’ expectations for a dip to 50.6. The 50-mark divides expansion from contraction on a monthly basis.

Tuesday’s survey, which pushed Asian shares to their highest in a decade, was somewhat at odds with a much larger official China PMI survey on Sunday. It showed a slowdown in growth amid a crackdown on pollution and measures to curb risky financing and cool the housing market.

Analysts say the difference stems from the fact that the Caixin/PMI index tracks smaller, private firms, more sensitive to exports.

China is expected to have grown by close to 7% in 2017, but the world’s second largest economy is likely to slow in the new year on the back of those measures, highlighted as policy priorities at October’s key Communist Party congress. Beijing is expected to target 2018 growth at around 6.5%.

“We anticipate further weakness in the coming quarters as tighter monetary conditions continue to weigh on economic activity,” said Julian Evans-Pritchard, senior China economist at Capital Economics.

For the rest of Asia, the pace of rate increases is unlikely to match that of the US Federal Reserve, which is seen hiking 2-3 times in 2018.

  Lagging the Fed?

“Monetary policy will likely lag the Fed’s for a while, with only a few rate hikes here and there across the region over the coming two years,” HSBC analysts said in a note.

In November, the Bank of Korea raised interest rates for the first time in more than six years to 1.50%, becoming the first major Asian central bank to hike since 2014. It is expected to be joined by Malaysia and Philippines early this year and Australia and New Zealand later on.

On Sunday, South Korea’s central bank chief said monetary policy should remain accommodative as inflationary pressures remained weak. Factory activity, which has been riding a global tech boom, contracted in December, dropping from a 4-1/2 year high in November, the Nikkei/Markit survey showed.

Another major tech producer, Taiwan, saw manufacturing activity hitting its highest since April 2011 at 56.6 last month, according to a survey.

Singapore, which emerged last year as a player in the electronics industry, on Tuesday posted slower economic growth in the fourth quarter as manufacturing shrank 11.5% following an eye-popping 38% jump in the previous three months.

Full-year growth, however, was still the fastest in three years at 3.5%, raising the possibility that the Monetary Authority of Singapore could tighten its exchange rate-based policy this year.

“Given robust GDP growth and inflation upside risk, we think MAS will shift and tighten to a ‘mild appreciation bias’ at the April meeting,” Maybank Kim Eng economist Chua Hak Bin said.

December factory activity accelerated in Vietnam, but shrank marginally in Malaysia and Indonesia.

  India Fastest in 5 Years

Buoyed by a rise in output and new orders, India’s factory activity expanded at the fastest pace in five years in December, a private sector survey showed on Tuesday, PTI reported.

The seasonally adjusted Nikkei India Manufacturing Purchasing Managers Index rose to 54.7 in December from November’s 52.6. A reading above 50 on the index denotes expansion.

“India’s goods-producing economy advanced on its recovery path, with operating conditions improving at the strongest pace since December 2012,” said Aashna Dodhia, an economist at IHS Markit and author of the report.

As per the report, India’s manufacturing sector witnessed higher payroll figures in December while the rate of job creation rose to its highest since August 2012.

“Strong business performance was underpinned by the fastest expansions in output and new orders since December 2012 and October 2016, respectively. Anecdotal evidence pointed to stronger market demand from home and international markets,” Dodhia added.

Foreign demand also expanded at its quickest pace since June.


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