You are here
Asia's factory activity grew in November, but may have peaked
[HONG KONG] China's factories notched their strongest growth in activity in two years and Japanese firms order books rose in November, masking concern about the protectionist leanings of US President-elect Donald Trump and an Opec-induced oil price rally.
Factory surveys produced stronger purchasing manager index (PMI) numbers in China, Taiwan and Vietnam, and while activity in Japan's factories was still growing in November, the pace was slower than in October.
Some analysts cautioned that November might be as good as it gets, as the effects of stimulus measures in some parts of Asia are wearing off.
"The strength in PMI numbers is unlikely to be sustained as much of it can be explained by previous stimulus measures," said Julian Evans-Pritchard, an economist at Capital Economics based in Singapore. "We see increased signs of slowdown in domestic economies, particularly in China."
An uncertain outlook for global trade was also worrying Asia's export-driven economies. "We are still envisaging a little bit of global trade momentum from where we are now, but there is so much uncertainty at the moment in the world," Louis Kuijs, head of Asia economics at Oxford Economics said.
Mr Trump will probably adopt more fiscal expansion, which should boost US economic growth. "But here in Asia, we are still waiting very much to see what the Mr Trump presidency will mean for things like trade policies and trade restrictions," Mr Kuijs said.
Mr Trump has already declared his intention to withdraw from an Asia-Pacific free trade agreement once he is inaugurated on Jan 20, and his protectionist comments while campaigning for the presidency could herald problems ahead for Asia.
China's official PMI rose to 51.7 in November from October's 51.2, staying above the 50-point mark that separates growth from contraction on a monthly basis. The index was stronger than economists polled by Reuters had expected and matched a level last seen in July 2014.
But analysts noted a worrying lack of expansion in new export orders for Chinese factories, suggesting the stronger headline number was consequence of demand coming from its frothy property sector, which authorities are trying to cool.
"The strength in PMI numbers is unlikely to be sustained as much of it can be explained by previous stimulus measures," said Mr Evans-Pritchard. "We see increased signs of slowdown in domestic economies, particularly in China." The unofficial Caixin survey showed a more modest increase in activity, perhaps because it focuses on smaller firms which benefit less from government support for the economy.
While growth in activity was slower in Japan, a sub-index for new orders, which measures both domestic and external demand, rose to a 10-month high of 51.1 in November, up from 50.8 in October.
An improvement in the US and European economies could augur well for exporters, but economists said demand is still fragile, and it will be difficult for manufacturers to pass on to customers the cost of higher input materials.
That includes more expensive oil. Crude prices rallied by around 10 per cent after the Organisation of Petroleum Exporting Countries agreed on Wednesday to cut output for the first time since 2008.
Elsewhere in Asia, India's factory activity was still expanding but growth slowed in November, resulting in the biggest month-on-month decline in its PMI since March 2013.
The index dropped to 52.3 in November from 54.4 a month earlier.
Analysts said the slowdown was probably due to a convulsion in demand after Prime Minister Narendra Modi ordered 500 rupee and 1,000 rupee banknotes to be removed from circulation.
South Korean factories showed a fourth consecutive month of slowdown underlying a fragile recovery for Asia's fourth-biggest economy.
In Malaysia, whose the ringgit currency has fallen sharply due to capital outflows, the PMI fell to a five month low, hurt by falls in production and new orders.
And in Australia, lower business investment has opened the possibility that the economy shrank last quarter for the first time in almost six years.