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Solid Asia factory growth caps a strong first quarter but outlook cloudy
April 3, 2017 / 6:24 AM / 6 months ago

Solid Asia factory growth caps a strong first quarter but outlook cloudy

HONG KONG (Reuters) - Factories across much of Asia posted another month of solid growth in March, rounding off a strong quarter for the world’s manufacturers, even as exporters fear a rise in U.S. protectionism could snuff out a global trade recovery.

China again led the way, with an official manufacturing index expanding at the fastest pace in nearly five years, while factory surveys on Monday showed encouraging growth as well in Japan, India and much of emerging Asia.

Higher commodities prices have helped boost the value of exports, along with a global thirst for electronic gadgets, but many countries are reporting stronger sales volumes as well, even as the new Trump administration starts to flex its muscles on trade.

“Asia’s economic backdrop remains solid with most countries remaining above the key threshold level of expansion, though U.S. trade protectionism fears is the biggest uncertainty for now,” said Aidan Yao, an economist at AXA Investment Managers in Hong Kong.

In China, the official Purchasing Managers’ Index (PMI) on Friday rose to 51.8 in March from the previous month’s 51.6, thanks to a months-long construction boom which is helping to boost resources prices around the world.

That was the strongest reading since April 2012, though a private survey focussing on smaller firms painted a slightly more cautious picture, raising questions about whether the export recovery can be sustained.

Julian Evans-Pritchard, an economist at Capital Economics in Singapore, believes the strength in China won’t last, reckoning a flurry of measures to cool its overheated property market and central bank policy tightening will lead to a slowdown in investment and industrial activity in coming quarters.

But the biggest risk for China may be brewing halfway across the world, with U.S. President Donald Trump due to hold his first meeting with counterpart Xi Jinping in Florida later this week.

Trump foreshadowed the risk that those talks could be tense, tweeting on Thursday that the United States could no longer tolerate massive trade deficits and job losses.

On Friday, Trump sought to push his crusade for fair trade and more manufacturing jobs back to the top of his agenda by ordering a study into the causes of U.S. trade deficits and a clampdown on import duty evasion.

The failure of the new U.S. administration to push through healthcare reforms last month has also added to global worries that Trump will struggle to pass much-anticipated tax cuts and fiscal spending plans which could boost demand in the world’s largest economy.

Delays to the reflationary plans could see U.S. orders and global investment moderate in coming months as businesses grow more cautious.

FILE PHOTO: A worker installs rubber onto the windows of the doors along a production line at a truck factory of Anhui Jianghuai Automobile Co. Ltd (JAC Motors) in Hefei, Anhui province May 5, 2014. REUTERS/Stringer/File Photo

AS GOOD AS IT GETS?

While China has strong domestic demand to fall back on, at least for now, other export-reliant Asian economies are more vulnerable if Trump goes on a trade offensive.

Japanese factory activity expanded at a solid clip of 52.4 in March, though at a slightly cooler pace than in the previous month as growth in new export orders and output slowed.

Its modest economic recovery has been driven largely by a resurgence in exports, which are helping to offset stubbornly sluggish demand at home.

In South Korea, where exports account for half of the economy and domestic demand is similarly weak, readings have been decidedly mixed.

Factory activity shrank for an eighth straight month and at a faster pace than in February, prompting factory owners to cut jobs at the fastest pace since the global financial crisis, a private survey showed.

But official trade data at the weekend showed the country’s exports grew more than expected in March, albeit at a more modest pace than in February.

On a more upbeat note, activity in India’s manufacturing sector expanded at the fastest pace in five months as output and new orders accelerated.

The findings suggested the world’s fastest growing major economy has largely recovered from Prime Minister Narendra Modi’s shock decision in November to ban high-value currency notes, which caused huge disruptions to the largely cash-based economy.

Similar activity surveys later in the global day are expected to show solid factory growth in the United States and Europe.

Bolstering expectations of increasing resilience in the global economy, data last week showed U.S. inflation rising at its fastest pace in five years despite some sluggishness in consumer spending.

In Europe, preliminary PMI readings had indicated businesses across the euro zone ramped up activity at the fastest pace in almost six years in March as demand grew despite sharper price rises.

Reporting by Saikat Chatterjee; Editing by Kim Coghill

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