Asia's manufacturing downturn deepened in August 2012 as China weakened sharply, adding to pressure on governments and central banks to do more to prevent a sharper slowdown caused by flagging demand from Western markets.
According to HSBC Purchasing Managers' Index data, 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 and at a faster clip than preliminary data showed last month. That followed an official manufacturing PMI that signaled a contraction for the first time since November 2011.
Manufacturing in South Korea, whose exports have been hit hard by weakening foreign demand, continued to shrink in August 2012, though at a slightly slower pace. In Taiwan, which also depends heavily on consumers overseas to power its industries, the pace of contraction increased. Indonesia, Southeast Asia's biggest economy, continued to buck the weakness elsewhere in the region.
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 50.0 that separates expansion and contraction.
Mr Qu Hongbin HSBC chief economist for China said that "This drop confirmed that China's manufacturing sector still faces intensifying downward pressure. Beijing must step up policy easing to stabilize growth and foster job market conditions."
China's official manufacturing PMI fell for a fourth straight month, dropping to 49.2 in August from 50.1 in July, below a forecast of 50.0 in a Dow Jones Newswires poll.
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. Prices of iron ore and other industrial commodities have fallen in recent months in tune with softer demand from China, squeezing profit margins and calling into question the viability of some future mining projects.
Mr Innes Willox CEO of Australian Industry Group said that "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."
The Australian Industry Group PricewaterhouseCoopers Australian Performance of Manufacturing Index increased 5.0 points in August to 45.3, still well in contractionary territory, with basic metals and transport equipment among the weakest areas and higher utility costs, the strong Australian dollar and soft retail demand continuing to damp activity. Retail sales fell 0.8% in July from June, going against a forecast for a rise of 0.2%, led by a steep drop in department store sales.
Korea's HSBC PMI ticked up to 47.5 from 47.2 July but remained well below 50.0 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 dropped 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 fell 5.6%, while those to the European Union plunged 9.3%. Exports to the US were down 2.1%, according to government data Saturday.
Like China, where inflation has been easing, price pressures in Korea are decreasing: August inflation of 1.2% was the lowest since May 2000, Statistics Korea said Monday. This gives the central bank there room to cut interest rates to prop up the economy.
Mr Ronald Man economist at HSBC said that "Korea's manufacturing sector remains weak, even if conditions are not deteriorating as sharply as before. Demand from home and abroad continues to contract, prompting local firms to reduce output further. 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."
Mr Man predicts the Bank of Korea will cut its key rate a quarter percentage point this month after a similar cut in July 2012.
Japanese data signaled an acceleration in private capital expenditure in the second quarter, with spending rising 7.7% from a year earlier more than double the pace of increase in the first quarter.
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 2012 from 55.6, further into expansionary territory, though a fall in the new orders sub index indicated the Chinese economy still faces headwinds.
What's more, HSBC's manufacturing PMI for Indonesia 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.
HSBC economists Ms Su Sian Lim and Ms Namrata Mittal said in a note that "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."
Source - Nikkei News
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