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Manufacturing activity data in Asia point to recession

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Via Financial Times

Industry across Asia is suffering a grave but not yet catastrophic slowdown as the impact of the coronavirus hits home, according to the latest round of business surveys from around the region.

Purchasing managers’ indices from Japan, South Korea, Thailand, the Philippines, Indonesia, Malaysia and Vietnam all pointed towards recession, while more positive data from China and Taiwan suggested only stabilisation at a low level of activity, not a rapid turnround.

The figures show how industry across the region has suffered from lockdowns to control the coronavirus, as well as falling global demand, although the slowdown has not yet hit the same depths as during the financial crisis of 2008-09.

The PMI readings also suggest that ramping up manufacturing activity in China will be a slow process and may not provide much support to the regional economy.

“[China’s] manufacturing sector was under double pressure in March: business resumption was insufficient; and worsening external demand and soft domestic consumer demand restricted production from expanding further,” said Zhengsheng Zhong, chief economist at CEBM Group.

The Caixin-Markit manufacturing purchasing managers’ index for China rose to 50.1 in March from the previous month’s record low of 40.3. That was above a Reuters poll forecasting a print of 45.5.

But while a figure above 50 means a majority of purchasing managers think conditions are getting better, Robert Carnell and colleagues at ING said the data pointed to stabilisation of the grim conditions prevailing in February, rather than a rapid recovery. “This is not a V-shaped recovery,” they said.

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In South Korea, the PMI fell from 48.7 in February to 44.2 in March, the worst in 11 years. The index hit all-time lows in Thailand at 46.7; the Philippines at 39.7; and Vietnam at 41.9. In each case, the readings pointed to a sharp contraction in factory output.

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South Korea initially reported one of the worst Covid-19 outbreaks outside of China but the country’s rate of daily new infections slowed to around 100 in recent weeks from more than 900 in late February. The country reported 101 new cases on Wednesday, taking the total caseload to 9,887.

“Although South Korea has succeeded in ‘flattening the curve’ . . . it has still succumbed to a substantial economic shock,” said Joe Hayes, an economist at IHS Markit.

In Japan, the Jibun Bank PMI fell to 44.8 in March, down from 47.8 in February. The Bank of Japan’s closely watched Tankan index for large manufacturers also fell into negative territory, at minus 8 compared with the previous reading of zero. That suggests a relatively mild slowdown so far but hints at worse to come.

“The outcome was obviously poor but for large companies, both in manufacturing and non-manufacturing, they were better than consensus expectations, both in terms of the current situation and the outlook,” said John Vail, chief global strategist at Nikko Asset Management in Tokyo.

“The numbers do not indicate any panic, unlike some parts elsewhere in the world,” he said.

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