Global slowdown bites across Asia
Asia’s biggest economies posted disappointing export and manufacturing figures on Wednesday in the latest sign that the region is following the US and Europe into an economic slowdown.
China reported a slight deterioration in manufacturing activity for July while South Korea saw a sharp fall in exports, just a day after Taiwan unexpectedly reported that its economy shrank in the second quarter.
“Asia is finally getting caught up in the European mess with trade finally starting to buckle,” said Frederic Neumann, regional economist at HSBC. “The latest data suggests there is much more pain to come on the export side.”
As the first Asian economy to report export data, South Korea is closely watched by investors. The 8.8 per cent decline in shipments in July from a year earlier is by far the sharpest monthly fall this year and bodes ill for economic growth.
While economists caution against reading too much into a single month’s data, they expect to see similar weakness from Taiwan and China when those countries release export figures next Tuesday and Friday, respectively.
The dismal data from Asia highlights the region’s dependence on demand from the US and Europe, whose economies have struggled since 2008 marked the bursting of a huge debt bubble.
While the eurozone sovereign debt crisis has hit growth in Europe for more than a year, the effects have only recently started to feed through into reduced demand for exports from Asia.
Making matters worse, the domestic economies of many Asian nations have also slowed in recent months – particularly China, Korea, Taiwan and Hong Kong.
Taiwan’s economy contracted 0.16 per cent year-on-year in the second quarter, according to figures released on Tuesday, compared to expectations of a 0.5 per cent expansion.
The big hope for investors is that China’s economy will pick up steam in the coming months, having slowed sharply during the first half of the year.
China’s official purchasing mangers’ index, an important gauge of industrial activity, inched down to 50.1 in July from 50.2 in June, just above the 50 line which separates expansion from contraction.
Ashley Davies, an economist at Commerzbank, said the China’s latest PMI data were “consistent with an ongoing slowdown but no hard landing”, although others are less confident.
Activity in Australia’s manufacturing sector, meanwhile, hit a three-year low in July as the Australian dollar continued to grind higher.
The Australia Industry Group PMI index dropped 6.9 points to 40.3 last month, the lowest reading since June 2009. The report will add to concerns that large parts of the Australian economy are being hollowed out by the continued strength of its currency.
AIG chief executive Innes Willox said the fall in manufacturing production and employment were the main factors behind the sharp drop and warned further falls were ahead.
“The industry is experiencing substantial pressures driven by the strong dollar, cost increases, slow growth in domestic demand and competition from lower cost sources of production”, he said.
Indonesia defied the regional trend as manufacturing activity continuing to expand last month. According to a survey released by HSBC, Indonesian PMI rose 1.2 points to 51.4 in July, a nine-month high.