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India joins China, Russia in slashing output, jobs

India joins China, Russia in slashing output, jobs
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First Published: Fri, Jan 02 2009. 10 59 PM IST

Slowing orders: The Hyundai Motor unit in Tamil Nadu. Auto makers Hyundai and Tata Motors are among those responding to the slowdown by cutting production. Data show industrial output shrank 0.4% in O
Slowing orders: The Hyundai Motor unit in Tamil Nadu. Auto makers Hyundai and Tata Motors are among those responding to the slowdown by cutting production. Data show industrial output shrank 0.4% in O
Updated: Fri, Jan 02 2009. 10 59 PM IST
Beijing: Factories in China, India and Russia slashed output and jobs at a record pace in December in another sign the world’s largest emerging markets were wilting under the recession that has gripped most industrialized nations.
Factory activity surveys in the US and Europe out on Friday are also expected to show steeper contractions in December, as demand collapses at home and crushes growth in many of the developing nations that rely on Western consumption.
Slowing orders: The Hyundai Motor unit in Tamil Nadu. Auto makers Hyundai and Tata Motors are among those responding to the slowdown by cutting production. Data show industrial output shrank 0.4% in Oct. Madhu Kapparath / Mint
Economists and policymakers had seen China, Russia, India and Brazil—with the their vast markets and rising wealth—as the engines of growth that could save the world from recession. Those hopes are fading fast and forecasts are getting gloomier.
South Korea warned exporters 2009 would be tougher than last year, and Singapore said its export-dependent economy may shrink 2%. Citigroup Inc. said the city state’s economy—a bellwether for global trade—would shrink 2.8%, the steepest in its history.
And everywhere, from job loses at Chinese factories to the biggest drop in South Korean house prices in five years, there were signs that the export slowdown was rippling through domestic economies.
“What is worrying is that the weakness has spread rapidly from the externally oriented sectors to domestically oriented sectors, too,” analysts at OCBC Bank in Singapore said in a note after the country announced gross domestic product, or GDP, data.
In contrast to the rapidly darkening economic outlook, the mood in markets has brightened slightly. Having squirrelled cash into safe havens for much of the past quarter, investors are eyeing assets pummelled in the financial turmoil of 2008.
Asian shares and the Australian and New Zealand dollars gained on Friday while the Swiss franc and US treasurys eased, in a tentative sign risk appetite was growing after a year in which $14 trillion (Rs684.6 trillion now) was wiped off stock investors’ books.
“It feels like we’ve passed through the eye of the storm,” Robert Rennie, chief currency strategist at Westpac Banking Corp. in Sydney, said of the financial crisis triggered by US bank failures last year.
“That’s not to say there isn’t another storm on the horizon, but for the moment the intense pessimism of October and November seems to have eased.”
For Chinese factories and policymakers looking to contain an economic slump, there was much cause for pessimism.
Manufacturing activity fell for a fifth month as the global financial crisis bludgeoned demand for exports, the Purchasing Managers’ Index (PMI) showed on Friday.
The index rose to 41.2, up from the record low of 40.9 plumbed in November, indicating that while manufacturing was still shrinking, the pace had slowed from November’s record.
The output sub-index fell to 38.6, signalling the sharpest contraction in production since the survey was launched in April 2004.
“With five back-to-back PMIs signalling contraction, the manufacturing sector, which accounts for 43% of the Chinese economy, is close to technical recession,” Eric Fishwick, head of economic research at CLSA, which publishes the index.
For Chinese policymakers worried about social stability, the most alarming news may have been the employment sub-index, which showed factories shedding jobs at the fastest pace on record.
PMIs in Russia and India offered similarly grim readings with the headline, employment and output indexes sinking to record lows.
The contraction in Russian manufacturing is deeper than the slump during the 1998 financial crisis, which saw bank collapses and a default on sovereign debt.
In India, factories cut jobs, for the first time in the survey’s three-year history, to reduce costs.
The ABN Amro Bank PMI, based on a survey of 500 companies, fell to a seasonally adjusted 44.4 in December, falling for the fourth consecutive month to its lowest since the survey began in April 2005 and below November’s 45.8.
A reading above 50 signals economic expansion while a figure below 50 suggests contraction.
In a bid to boost flagging economic growth, which is expected to slow to 7% this year from 9% in 2007-08, the government has unveiled a multi-billion dollar stimulus package and the central bank has cut interest rates aggressively.
Gaurav Kapur, senior economist at ABN Amro Bank NV, said conditions were unlikely to improve in the near future and the benefits from measures taken by authorities would take time to filter through.
“Until such time, the manufacturing sector will have to cope with contracting demand, especially on the exports front and stalling investment activity,” Kapur said.
Manufacturing makes up about 16% of India’s GDP.
The PMI survey, which is compiled by the UK-based Markit Group Ltd, comes well ahead of official statistics.
The latest available data released in early December showed industrial output had contracted 0.4% in October from the previous year.
Bloody militant attacks on the financial centre Mumbai in late November may have added to the investor gloom.
All the indexes covered by the PMI report fell to their lowest in the series.
Firms cut jobs for the first time in the survey’s history to reduce costs as incoming new orders fell sharply and spare capacity at factories rose sharply, indicating shrinking activity.
In all three countries, factories reported slumping export orders with recession chilling demand in their largest markets—the US, Japan and Europe.
Manufacturing PMIs for the euro zone, Britain, Switzerland and the US are due to be released on Friday, Economists expect all to stay below the 50 mark that divides contraction from expansion.
Smaller Asian exporters are bracing for a double whammy from the collapse in Western demand and shock waves rippling through big customers in Asia, China and Japan.
South Korea, which ships one-fifth of its exports to China, said export growth this year would be about 1%, the weakest since 2001. Exports in December dropped 17.4% from a year earlier, exceeding economists’ expectations.
Singapore’s economy contracted at a seasonally adjusted annualized pace of 12.5% during the October-December quarter, following a revised 5.4% drop in July-September.
The government cut its economic forecast to a range between a decline of 2% and growth of 1% in 2009, compared with a range that went from a contraction of 1% to growth of 2% predicted in November.
Citigroup said that forecast was still too optimistic.
“If we are correct, 2009 will mark the most severe recession in Singapore’s history, surpassing the Asian financial crisis and the 2001 tech recession,” said Citigroup economist Kit Wei Zheng.
Saikat Chatterjee and Reuters bureaus worldwide contributed to this story.
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First Published: Fri, Jan 02 2009. 10 59 PM IST
More Topics: India | China | Russia | Output | Economy |