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Major Asian exporters stumble on weak global economy

July 31, 2012

TOKYO: Major Asian exporters Japan, South Korea and Taiwan showed deepening signs of economic stress today as Europe’s sovereign debt crisis, a slowing China and sluggish activity in the United States weigh on global demand.

A purchasing managers’ report suggested Japan’s factory sector is shrinking at its fastest pace since last year’s earthquake and industrial output in South Korea fell four times more than expected.

Taiwan sliced a full percentage point off its official forecast for 2012 economic growth, the seventh downgrade since last August.

The reports come ahead of the release tomorrow of two China purchasing managers’ indexes. Weak readings from the world’s number-two economy could alarm policymakers globally and spark fresh action to bolster growth.

“Overseas demand is weak, so Asian countries that focus on exports are going to face a difficult time,” said Yasuo Yamamoto, senior economist at Mizuho Research Institute in Tokyo.

“The Bank of Japan could ease policy in September as there is a lot of uncertainty about the global economic outlook. As long as there are no concerns about inflation, we could see central banks in other countries take steps too.”

The US Federal Reserve reviews policy today and tomorrow and the European Central Bank takes stock on Thursday.

Japan worry

The Markit/JMMA Japan Manufacturing PMI fell in July to a seasonally adjusted 47.9 from 49.9 in June. It marked the second month that the index had been below 50, a threshold that separates contraction from expansion.

More worryingly, 47.9 suggested the sector that includes the likes of camera maker Canon Inc and carmaker Nissan Motor Corp is contracting at the fastest pace since April 2011, a month after the earthquake and tsunami that devastated large areas of Japan’s northeast coast.

“Factory output, new orders and exports all decreased at the fastest rates since April 2011, while input buying and backlogs also decreased markedly,” said Alex Hamilton, an economist at British data provider Markit, which gathers the figures.

“These are worrying developments given the weakness of global demand at present.”

A new export orders index, a leading indicator, fell to 43.2 from 47.5 to mark the fastest contraction since the earthquake.

Apart from weakness in global demand, Japanese companies are also battling against a strong yen, which Nissan said last week had reduced its quarterly operating profit by 25.7 billion yen (US$330 million).

The output sub-index fell to 47.3 from 48.7, reflecting official figures yesterday that showed Japan’s industrial output fell in June for the third straight month.

A raft of purchasing managers’ reports are due to be released globally tomorrow, including on India, South Korea and Taiwan.

The main focus in Asia will be on the PMIs for China, which earlier in July posted its sixth successive quarterly slowdown in economic growth.

Slowdown unavoidable?

South Korea, a major producer of autos, chips, flat screens and mobile phones, said today that industrial output fell a seasonally adjusted 0.4% in June from May, steeper than a median forecast of a 0.1% decline.

Data tomorrow is expected by analysts to show the country’s exports fell in July from a year earlier, underlining the view that a slowdown in Asia is unavoidable when both the US and Chinese economies falter.

Taiwan today cut its 2012 full-year growth forecast to just over 2%, which would be the slowest pace of economic expansion since 2009.

Taiwan, home to major tech firms such as the world’s biggest contract computer chipmaker Taiwan Semiconductor Manufacturing Co Ltd, plays a central role in the global tech supply chain, so its economic data is closely watched.

The growth revision came as figures showed the economy expanded slightly in the second quarter from the first quarter but unexpectedly contracted from a year earlier.

Aidan Wang, an economist at Yuanta Securities (Taipei), said the island’s GDP report “shows that many corporates postponed investment and expenditures because of what was happening in Europe.”

The PMI data tomorrow and South Korea’s exports figures will give investors the first major look at the shape of the Asian economy in July.

“The trade outlook for next year does not look very rosy at this point,” said Park Sang-hyun, chief economist at HI Investment & Securities in Seoul.

“There is a big chance the Bank of Korea will make a back-to-back rate cut in August. If they do, there will be another cut within the end of the year.”

– Reuters


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