Manufacturing activity in much of Asia slowed further in June while inflation remained tame, data showed Monday, pointing to the likelihood of more central bank easing to try to jump-start economic growth in the region.
A leading gauge of manufacturing showed China factory output slowed further in June, while similar surveys in South Korea and Taiwan showed manufacturing slipped into contraction in June, following several straight months of expansion.
India and Indonesia bucked the trend during the month, showing more resilience to tough overseas conditions than other export-dependent Asian countries, as manufacturing picked up pace in both economies.
“These data depict economies that are moving sideways. It reinforces the view that things aren’t horrible, but they’re not good either,” said Tim Condon, chief Asia economist at ING Bank.
In Japan, large companies are more optimistic about business conditions and plan to ramp up capital spending, according to the results of the quarterly tankan survey released Monday.
With recession threatening Europe and the US economy still stuck in low gear, demand for manufactured goods from Asia has slowed significantly. Far from standing idly by, China’s central bank has been loosening bank reserve requirements and cut interest rates in June in an attempt to stimulate domestic demand to offset the external slump.
Economists said it is likely the People’s Bank of China will soon unleash more easing measures. Citi economist Ding Shuang predicts two more rate cuts in the third quarter.
The final HSBC China manufacturing purchasing managers’ index fell to 48.2 in June from 48.4 in May. China’s official PMI for June, released Sunday, came in at 50.2. The reading was slightly better than economists had forecast at 49.8, but was down from May’s 50.4 showing.
A reading below 50 indicates a contraction in manufacturing activity from the previous month, while a reading above 50 indicates expansion.
Consumer price data shows inflation in much of the region is cooling, allowing policy makers to shift their focus to supporting growth, particularly in China and South Korea, said ING’s Condon.
Korea’s Consumer Price Index rose 2.2 percent in June over the previous year, slower than economists’ prediction of a 2.4 percent rise, and slower than a 2.5 percent gain in May.
HSBC’s PMI gauge for Taiwan fell to 49.20 last month from 50.50 in May, its first contraction since January.
The bank’s June reading for South Korea slipped to 49.4, from 51.0 the previous month.
In Vietnam, manufacturing conditions worsened even more sharply, with HSBC PMI dropping to 46.6 from 48.3 in May.
By contrast, manufacturing activity in India was strong in June, helped by new order inflows. HSBC PMI for Asia’s third-largest economy rose to 55.0 in the month, from 54.8 in May.
Indonesia’s HSBC PMI rose to 50.2 in June from 48.1 in May.
Indonesia also bucked the regional trend on inflation, with a 4.53 percent rise in the CPI in June, up from 4.45 percent in May.
In Japan’s tankan survey, large manufacturers’ business sentiment index improved to minus 1 in the quarter ending June 30, compared with minus 4 in the previous March survey. Big manufacturers and nonmanufacturers plan to boost capital spending by 6.2 percent in the current fiscal year that began in April, nearly double the 3.6 percent increase expected by economists.