World Economy

Asia Faces Softer Demand in Global Economy

Asia Faces Softer Demand in Global EconomyAsia Faces Softer Demand in Global Economy

China’s growth engine looks to have ended last year on a flat note as its massive factory sector sputtered in December, though ebbing price pressures also offered scope for more policy stimulus from Beijing and across much of Asia.

The tale was similar from Singapore to South Korea to Indonesia as manufacturers struggled with weak demand, both at home and abroad, Fin24 reported.

China’s official purchasing managers’ index (PMI) slipped to 50.1 in December from November’s 50.3, its lowest level of the year and just above the 50-point level that is supposed to separate growth from contraction.

There was better news from China’s services sector, which accounts for close to half of the economy, where the PMI edged up to 54.1 in December from November’s 53.9.

Yet many analysts suspect economic growth for all of 2014 will undershoot the government’s 7.5% target, marking the weakest expansion in 24 years.

With factories able to make more than consumers wanted to buy, the pressure was intense to cut prices.

“The price measures show very strong disinflationary forces,” said analysts at Nomura.

“With no inflation pressure, we expect more policy easing in the first quarter, including a 50 basis-point cut in the bank reserve requirement ratio, to shore up domestic demand.”

  Inflation Deflates

Disinflation was a feature across much of the region. India’s PMI showed input prices slumped to a near six-year low, even as overall manufacturing activity picked up to its fastest in two years.

The HSBC PMI, compiled by Markit, rose to 54.5 in December from 53.3, the 14th straight month above the 50-mark that separates growth from contraction.

Yet India’s annual inflation rate has slowed to only 4.38%, the lowest since the government started releasing the data in 2012 and potentially a green light for easing by the Reserve Bank of India (RBI).

“With the disinflationary trend gaining ground, the RBI is expected to find space for some rate cuts in 2015,” said Pranjul Bhandari, chief India economist at HSBC.

In South Korea, consumer prices grew at the slowest clip in more than 15 years in December, opening the door for further rate cuts there.

Its version of the PMI contracted slightly but did show some improvement in December to stand at 49.9, from 49.0 in November.

Indonesia was not even that fortunate as its PMI slipped to 47.6 in December, the lowest since the survey began in April 2011 and a third consecutive month of contraction.

Singapore also disappointed as economic growth slowed more than expected in the fourth quarter and the manufacturing sector contracted in the face of erratic global demand, which could continue to weigh on Asia’s trade-reliant economies well into the new year.

The city-state’s gross domestic product expanded by an annualized 1.6%, well short of the 3.0% analysts expected and mainly due to a reversal in manufacturing.

  Diverging Paths

Asian exporters will get some relief as the US economy shifts into higher gear, though they did not benefit as much from the American recovery in 2014 as they had in the past.

The US Federal Reserve has indicated it will start raising rates from zero later this year as long as the economy continues to improve and unemployment falls further.

In contrast, the December PMIs from the eurozone are seen staying subdued, which will only add to pressure for more aggressive action from the European Central Bank.