Asian Manufacturing Weakens

Manufacturing activity in China shrank in November for the first time in nearly three years, while output elsewhere in Asia also softened, raising questions about the region's ability to drive the global economy amid sluggish demand from the West.

The disappointing data come hot on the heels of Beijing's decision Wednesday to cut banks' reserve requirement ratio for the first time in nearly three years, a move analysts say could mark the beginning of a sustained monetary-easing campaign.

A Purchasing Managers Index released Thursday by China's government dropped to 49 in November from 50.4 in October, worse than the 49.7 forecast and entering contractionary territory for the first time since February 2009.

A separate China PMI produced by HSBC and Markit, which fell to 47.7 in November compared with 51 in October, was the weakest since March 2009 and supported the bearish view on the region's powerhouse.
"The November PMI suggests that China's industrial activities are already heading for a major downturn," Daiwa Capital Markets economist Mingchun Sun wrote in a research note. "Although policy makers have officially changed the tone from tightening to loosening, we believe the slowdown is likely to accelerate in the coming months as it takes time for policy loosening to show its positive impact on the economy."

Other analysts said China would avoid a hard landing by taking the necessary monetary and fiscal policy steps.

Signs elsewhere in the region were also less than upbeat.

In South Korea, manufacturing activity contracted for a fourth straight month in November and at a faster pace than in October, with the HSBC PMI falling to 47.1 from 48.

Taiwan's manufacturing activity also continued to soften in November, albeit at a slightly slower pace. The HSBC PMI edged up to 43.9 from 43.7 in October.

In both countries, the contraction in activity reflected declines in domestic and export orders.

Australian manufacturing activity softened but the decline slowed, with the Australian Industry Group/PricewaterhouseCoopers manufacturing index rising to 47.8 in November from 47.4 in October.
In India the seasonally adjusted HSBC Purchasing Managers' Index, prepared by Markit, fell to 51 in November from 52 in October, led by a deceleration in domestic orders.

Manufacturing-sector employment fell for the fourth consecutive month, HSBC said, while input prices rose substantially. Though the Reserve Bank of India has raised its lending rate 13 times since March 2010 in an effort to slow inflation, the consumer price index has been stuck above 9% for 11 consecutive months.

The weaker economic backdrop will raise expectations of further monetary easing by central banks in the region.

Indonesian data Thursday showed that exports shrank 4.21% on the month in October, while the annual inflation rate slowed to 4.15% in November from 4.42% the previous month. A central bank official told Dow Jones Newswires that inflation could be 3.9% or even lower by the end of the year.

Bank Indonesia lowered its key interest rate by 0.50 percentage point to 6% last month, after a 0.25-percentage-point cut just a month before, and analysts say it could ease again at its meeting next week.
Data Thursday also showed that Thai consumer prices rose 4.19% in November from a year earlier—matching October's increase—as the country's worst floods in decades pushed up prices.

The Bank of Thailand reduced its benchmark interest rate by a quarter of a percentage point to 3.25% Wednesday, and said it was ready to cut further should economic conditions warrant it.

The Philippine central bank—which has paused its rate-increasing cycle amid weak global demand and sluggish economic growth—left its key interest rate unchanged Thursday, saying the outlook for inflation remains "tilted to the downside."

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