Asia's factory activity set to worsen

Asia's factory activity set to worsen

Manufacturing activity across much of Asia continued sliding last month and is widely expected to worsen amid the persistent global slowdown.

The regional downturn points to a wider global malaise, as major economies such as the United States and Europe are still not strong enough to help lift world growth.

Economists say pressure is mounting for governments to ramp up spending in support of ailing economies, instead of relying largely on monetary policy as they did in the past.

Manufacturing activity in China contracted at its fastest pace in over four years last month according to an official survey out yesterday.

The government statistics bureau said the manufacturing purchasing managers' index (PMI) fell to 49 from January's 49.4 - its weakest reading since November 2011. A reading below 50 implies contraction. China's official PMI figure has been in contractionary territory for the seventh straight month now.

A private survey by data monitoring company Markit, called the Caixin manufacturing PMI, pegged China's PMI at 48.0, its 12th consecutive month of contraction.

The disappointing figures were released just one day after the Chinese central bank reduced the reserve rate ratio for banks, which is the amount banks must hold in reserve.

The move aims to lift growth by making it easier for banks to lend out money.

HSBC Greater China economist John Zhu said the policy move "may provide a boost to activity and expectations", but more measures are needed "to reverse what looks increasingly like an entrenched broad-based slowdown, which is leading to a worrying deterioration in labour market conditions".

Meanwhile, factories elsewhere in the region are also suffering output declines. Taiwan, seen as a bellwether of high-tech trade, logged manufacturing PMI of 49.4 last month, down from January's 50.6.

Only three of the Asian economies surveyed - Japan, India and Vietnam - have signalled manufacturing expansion so far this year, said Mr Chris Williamson, the chief economist at Markit.

The Singapore Institute of Purchasing and Materials Management is expected to release its monthly manufacturing PMI for Singapore today, while Markit's Singapore data will be out tomorrow. Manufacturing, which makes up a fifth of the economy here, has been hit hard by the slowdown and was the main drag on growth last year.

This comes amid a "historically weak" period for manufacturing around the world, though Mr Williamson said the sector is not yet in crisis.

The scenario is worsening, however, and the outcome will depend on how central banks and governments react, he added during a conference call with media yesterday.

"If we're moving into a period of secular stagnation, monetary policy alone won't be able to pull the global economy out of it," he said.

"Governments must step in to support their economies through fiscal measures and structural reform."

chiaym@sph.com.sg


This article was first published on March 2, 2016.
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