Asia factories pick up steam, recovery to be bumpy

Manufacturers in Asia upped their tempo in April to meet growing demand from overseas, in a sign that while the road to recovery might be bumpy, the global economy remains on track and the worst has probably passed for China.

Optimism about a global rebound was boosted on Tuesday by a survey showing the pace of growth in US manufacturing picked up last month, although debt-mired Europe remains a concern with more dismal numbers expected from the euro zone later.

An index of China’s manufacturing offered more evidence on Wednesday that the world’s second-biggest economy bottomed out in the first quarter of the year, while the pace of factory sector growth in emerging rival India ticked up.

The HSBC China PMI, which concentrates mainly on privately owned firms, remained below the 50 threshold that divides growth from contraction, for the six month running. But it improved to 49.3 in April from 48.3 in March, hinting that the rate of deterioration had slowed, and was stronger than the preliminary ‘flash’ estimate released last week.

‘The upward revision to April’s final PMI reading, compared to the flash estimate, confirms that the pace of China’s slowdown has stabilized,’ said Hongbin Qu, chief economist for China & co-Head of Asian economic research at HSBC.

The reading from the HSBC index was weaker than China’s official PMI, which soared to a 13-month high of 53.3 in April, highlighting a continued divergence between China’s larger, predominantly state-owned enterprises that dominate the official data and the smaller, private firms that struggle to get credit.

HSBC’s Qu said easing of monetary conditions in China was beginning to take effect and, as the inflation outlook softened, additional easing was likely in the pipeline. That would push year-on-year GDP growth above 8.5 percent in the second half of 2012.

Many analysts view the first quarter of this year as the bottom of the down cycle for the Chinese economy. Growth eased to a near three-year low of 8.1 percent in the first quarter versus a year earlier, the fifth straight quarter of slowing growth. But not everyone is as optimistic.

‘It is way too premature, if not misguided, to conclude that China’s growth has distinctly bottomed and is poised for a strong bounce; especially in the context of external headwinds,’ said Vishnu Varathan, an economist with Mizuho in Singapore.

He pointed out that, although new export orders rose, an overall slip in the new orders component pointed to a slowdown in domestic demand, adding that struggling smaller firms and a precariously poised global economy were also worrying factors.

‘With US ‘green shoots’ faltering and the European recession intensifying, sustained improvement in China’s manufacturing sector is anything but a guarantee,’ Varathan said.

EXPORTS SUPPORT

Bulging order books helped nudge India’s factory activity up even as slower output growth and increasing price pressures dampened sentiment, the business survey showed on Wednesday.

The HSBC PMI figure for India, compiled by Markit, rose to 54.9 in April from 54.7 in March and has held above the 50 mark for more three years now.

While new orders, including exports, grew at a healthy pace, price pressures refused to subside with output prices hitting a 13-month high, signalling inflation was unlikely to fall any time soon.

Similar data released on Wednesday showed manufacturing activity in Asia’s key exporters South Korea and Taiwan grew but at a slower pace. In South Korea, factory activity rose for the third successive month at 51.9 in April as new business continued to pour in.

While manufacturing output rose at its fastest rate since February last year, increasing domestic consumer confidence and easing conditions in key trading partners such as China, boosted demand for Korean goods and pushed the new export orders sub-index to its highest reading since July 2011 at 51.46.

ROCKY ROAD TO RECOVERY

The contrast between China’s large state-owned firms and smaller factories, together with data on Tuesday showing that while US growth remained on track, British factories barely grew and Europe’s troubles were far from over, highlighted the bumpy nature of the global recovery.

US manufacturing grew in April at the strongest rate in 10 months, easing concerns the economy had lost momentum at the start of the second quarter.

The Institute for Supply Management (ISM) said on Tuesday its index of factory activity rose to 54.8 in April from 53.4, a reading that topped the highest forecast in a Reuters poll.

‘The effect of the solid US manufacturing activity will be felt in Asia in about six months, supporting my view that Asian exporters will gradually recover towards the end of the year,’ said Hirokazu Yuihama, a senior strategist at Daiwa Securities in Tokyo.

In contrast, a similar index for Britain stood at 50.5, showing factories barely grew in April as an economic slowdown in the euro zone curbed export demand.

Figures due later on Wednesday are expected to show factory activity in Europe shrank for the ninth consecutive month, with the PMI reading forecast at a dismal 46.0, lower than the 47.7 in March.