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Asia’s outlook darkens as factory activity slips, new orders fall



TOKYO (Reuters) – Asia’s economic prospects looked gloomy as factory activity and export orders weakened across the region in November, with analysts expecting no quick rebound amid simmering global trade frictions.

FILE PHOTO: Employees work at a production line inside a factory of Saic GM Wuling, in Liuzhou, Guangxi Zhuang Autonomous Region, China, June 19, 2016. REUTERS/Norihiko Shirouzu

In a sign corporate sentiment was taking a hit from worries over protectionism, manufacturers’ activity slipped in November in countries as varied as Indonesia, Taiwan and South Korea, the IHS Markit Purchasing Managers’ Index showed on Monday.

While factory activity rose slightly in China, new export orders extended their decline in a further blow to a sector already hurt by Sino-U.S. trade frictions.

The survey results came on the heels of data out earlier on Monday showing a sharp slowdown in Japan’s capital expenditure, which had been considered a key driver of the export-reliant economy.

Asian shares rallied on Monday after U.S. and Chinese leaders meeting at the G20 summit in Argentina agreed on a truce in their trade conflict, offering some reassurance on the global economic outlook.

But analysts said the 90-day deadline the two sides agreed upon to reach a deal meant a conclusive resolution of the row remained distant.

“There’s a quite huge risk the Sino-U.S. trade war will intensify again after the 90-day truce, weighing on the global economy,” said Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities.

“The Sino-U.S. trade war remains the biggest risk for global economic prospects,” he said.


Bucking the trend, India’s factory activity in November expanded at the fastest pace this year, buoyed by a rise in domestic and foreign demand that allowed firms to raise prices.

China’s manufacturing sector activity grew slightly in November but new export orders shrank, reflecting weakening global demand, a private survey showed.

The downbeat readings backed Friday’s official PMI survey for November showing growth in China’s vast factory sector sliding to its lowest in more than two years.

South Korean factory activity in November contracted again after two brief months of growth as new export orders shrank by the most in over five years, a sign of increasing pressure on businesses from slowing global demand.

A revised survey showed Japan’s manufacturing activity expanded in November at the slowest pace in more than a year as growth in new orders slowed, a worrying sign that economic expansion may be muted in the fourth quarter.

“The underlying picture remains subdued, with momentum tilting towards a slowdown,” said Joe Hayes, economist at IHS Markit, which compiles the Purchasing Managers’ Index.

Japan’s economy shrank an annualized 1.2 percent in July-September as natural disasters and slowing global demand hurt factory output and exports.

Many analysts expect Japan’s economy to rebound in the current quarter, but warn the expected upturn could be weaker than expected as the fallout from trade frictions broadens.

Monday’s capital expenditure reading could mean revised gross domestic product (GDP) data due next week will show the economy shrank more than first calculated, analysts say.

“The contraction in July-September GDP could be deeper than the preliminary reading,” said Toru Suehiro, senior market economist at Mizuho Securities.

“External demand is weakening since the start of this year on slowing global growth, so it’s hard to expect Japan’s economy to strengthen much. The economy will likely stall for the time being,” he said.

Reporting by Leika Kihara, editing by Eric Meijer





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