Singapore: Factories in China and Japan started 2017 on a positive note in a sign the global manufacturing revival is carrying through from late last year, but rising protectionism in the United States threatens to snuff out a nascent recovery in Asian exports.
As global growth has gathered momentum over the past year thanks to a bounce in consumption, businesses have ramped up production in a boon to worldwide trade and investment.
That has shown up in major economies like Japan, where manufacturing activity expanded in January at the fastest pace in almost three years as export orders surged, Markit/Nikkei purchasing manager index (PMI) numbers showed.
In China, the world’s second-biggest economy, factory activity expanded for the sixth month in December, according to an official PMI survey, led by an investment and construction boom that has helped spur global growth. Even in laggard South Korea where manufacturing contracted for the sixth straight month, exports rose at the fastest pace in nearly five years.
The fairly solid underlying numbers, however, belied the growing uncertainty stoked by rising protectionism in the United Stated. Indeed, in export-reliant Asia, and other regions where global supply chains are closely inter-linked, the election of Donald Trump as US president has emerged as a major risk to both world trade and broad economic growth.
“The uncertainty surrounding future market access to the U.S. is bound to weigh on investment activity as companies await regulatory certainty,” said Frederic Neumann, co-head of Asian economic research at HSBC in Hong Kong. “I suspect there’s going to be a lot of capital expenditure expansion projects that will be put on hold as long as the uncertainty surrounding the trade environment persists,” he added.
Later in the day, analysts will get an opportunity to gauge the health of manufacturing activity in Europe and North America through similar PMI surveys.
The Trump factor, allied with a stronger dollar as the US Federal Reserve starts to raise interest rates at a faster pace, could knock global economic growth, and hurt Asian manufacturing and exports. On Tuesday, the Trump administration added to global political frictions, criticising China, Japan and Germany as having deliberately devalued their currencies.
Analysts warn a slowdown in Chinese economic growth and a pullback in stimulus in the Asian economic powerhouse could also hit demand across the region and elsewhere. China’s official PMI stood at 51.3 in January, slowing marginally from 51.4 in December, but above the 50-point mark that separates growth from contraction on a monthly basis.
China’s manufacturing sector has been buoyed by a government infrastructure building spree and a housing boom, which have fueled demand for building materials from cement to steel. However, some analysts question whether the growth will be sustainable once the impact of earlier stimulus measures begins to wear off and as the property market starts to cool.
“Within China, we expect that real estate will slow down, because the government is quite keen to contain housing prices,” said Louis Kuijs, head of Asia economics at Oxford Economics in Hong Kong. “There has also been a little bit of a shift toward more emphasis on reining in risk rather than supporting growth.”
Other major regional economies like Indonesia showed positive momentum in manufacturing activity, while Indian factory activity returned to modest growth in January, bouncing from a contraction in December triggered by the government’s scrapping of high value banknotes.
In Japan, where the PMI rose to 52.7 in January from 52.4 in December, the index for new export orders also came in at a solid 53.1, indicating the fastest gain in 12 months—a welcome sign for the economy as recent data suggest a more durable recovery may be underway.
But as those encouraging signals sit uncomfortably against the growing threat from Trump’s policies, Japan is moving to temper the risks with Tokyo hammering out plans to show Trump its firms are ready to create US jobs, according to a document whose contents were revealed to Reuters.
The upshot of all of this, analysts say, is that global businesses face a bumpy ride.
“We remain quite cautious how much of an acceleration in growth we can see in this pretty challenging climate,” Oxford Economics’ Kuijs said. “Things like PMI are timely indicators of the hard data but sometimes they do run ahead, and the improvement in actual data doesn’t materialize.” Reuters