Factory sentiment gets more frigid across Asia

  • Business
  • Tuesday, 02 Jul 2019

SINGAPORE: Factory sentiment across Asia became even more frigid in June, signalling a worsening in the region’s growth outlook as US-China trade tensions continue to simmer.

Waning global demand, particularly in the electronics sector that’s vital to much of the region, continued to weigh on Asia purchasing manager indexes, according to releases Monday.

Trade friction between the world’s two biggest economies is straining the outlook despite both countries agreeing over the weekend to resume negotiations.

June PMIs for Japan, South Korea, Malaysia, and Taiwan fell further below 50, signaling deeper contractions in factory output. South Korea’s index slumped to a four-month low of 47.5, while Taiwan’s reading of 45.5 was the weakest since November 2011, according to IHS Markit data. Both China’s official manufacturing PMI and the Caixin report signaled declining production last month.

Recent US-China developments – including a pledge by US President Donald Trump, at the weekend’s Group of 20 meetings, to delay any further tariffs – have done little to convince economists that the data will show a turnaround this year.

“We could have just changed the date and republished our old report on the last G-20 summit in December 2018,” Raymond Yeung, chief economist for greater China at Australia & New Zealand Banking Group Ltd, said in a note.

“The US has again held off new tariffs in exchange for China’s purchases of agricultural products. However, the US did not promise that it won’t escalate its trade measures.”

Economists have been downgrading their growth estimates for this year amid the slump in global demand.

The World Bank last month slashed its global growth forecast to 2.6% from its January projection of 2.9%, given a slowdown in trade to its weakest since the financial crisis and weakening investment.

What Bloomberg’s economists say:

“The pressures on Asia’s manufacturing sectors are expected to continue. Even with the US and China reaching another trade truce for now, the 25% tariffs are still in place on half of China’s exports to the US – constraining China’s exports and disrupting production in other parts of Asia.” – Chang Shu, chief Asia economist.

The manufacturing sentiment data coincide with weak recent export readings. Japan’s exports fell for a sixth month in May, down 7.8% from a year earlier, taking business sentiment to its lowest level in almost three years in June. Shipments from South Korea, Taiwan, Singapore, and Thailand have also contracted.

PMIs in Vietnam and the Philippines gained in June amid supply-chain diversions to South-East Asia. Vietnam has enjoyed rare success in exports, with shipments increasing 7.3% in the first six months of the year from the same period in 2018, recent figures showed.

“Most South-East Asian economies have seen exports plunge,” Sian Fenner, lead Asia economist at Oxford Economics, said on Bloomberg Television yesterday ahead of the releases.

“The manufacturing sector in general is going to remain very weak this year and be a drag for most economies.” — Bloomberg

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