By Kevin Brown in Singapore
Published: January 4 2010 03:47 | Last updated: January 4 2010 07:51
Asia’s rapid recovery from last year’s recession appeared to be confirmed on Monday by a slew of positive reports on industrial production that suggested economic growth is powering steadily ahead, led by China and India.
Even a worse-than-expected fourth-quarter contraction in Singapore’s gross domestic product failed to dampen the optimistic mood, with economists writing off the setback in the city-state as a consequence of pharmaceutical industry volatility.
Purchasing managers’ index reports for China, South Korea, Taiwan and India appeared to confirm that a robust and widespread recovery continues to be under way. Figures for Australia were expected later on Monday.
The China Manufacturing PMI, produced by HSBC and Markit Economics, rose to 56.1 in December, up from 55.7 a month earlier – the second fastest rise yet recorded by the survey, which dates back to 2004. The average rise for the fourth quarter of 2009 as a whole was also the fastest yet recorded.
The closely watched survey pointed to a ninth consecutive monthly expansion in new order volume, with companies reporting buoyant demand in both domestic and export markets. The growth in export orders was the fastest since March 2005, reinforcing a positive trend that began in the second half of last year.
The HSBC index confirmed the strong trend suggested by the official PMI numbers, released on January 1, which showed manufacturing activity expanding in December at the fastest pace for 20 months. The two series are not directly comparable because they use different methodology.
However, the HSBC date also signalled that prices charged by Chinese manufacturers were rising at the fastest rate since July 2008, buoyed by rising raw material costs as well as strong demand.
Grace Ng, economist at JPMorgan in Hong Kong, said the two PMI series taken together suggested that China’s manufacturing sector was experiencing a strong recovery, supported by broad-based demand growth.
“The manufacturing order to inventory ratio continued to stay at about the highest level since April 2008, suggesting that, with further steady recovery in final demand conditions, solid sequential trend growth in the manufacturing sector will continue in the coming months,” she said.
The India Manufacturing PMI, compiled by HSBC and Markit, rose from 53 to 55.6, its highest level since May, when it hit 55.7, the strongest performance of 2009. The positive result was helped by a big rise in the sub-index for new orders, which rose to 60.1, the highest for the year, from 54.6 in November.
The India PMI has now been above the neutral level of 50 for nine consecutive months, indicating a sustained period of expansion, following a five-month period when it suggested that output was contracting.
HSBC said the detailed December survey data suggested that growth was the strongest for 15 months, driven by better economic conditions and business investment. Demand from both domestic and foreign buyers was higher than in November, although the home market remained the principal driver of new business expansion.
The data will ease concerns that India’s manufacturing sector might have been slowing, although HSBC said many companies remained cautious about the durability of the country’s economic recovery.
The South Korea manufacturing PMI, also produced by HSBC, edged up slightly in December to 52.8 from 52.6 in November, indicating a continued expansion of the economy, although the pace appeared to be slowing.
The sub-index for total new orders fell from 54.1 to 52.9, and the index for new export orders declined from 52.4 to 50.7. However, both remain in positive territory. Any figure above 50 indicates growth in the index, with any figure below 50 indicating a decline.
In Taiwan, the manufacturing PMI, produced by HSBC and Markit, moved upwards for the ninth successive month, reaching 58.7 from 58.4 in November. The index showed strong demand in both export and domestic markets, although the rate of increase in new orders edged downwards.
In Singapore, the Ministry of Trade and Industry said the economy contracted by 6.8 per cent in the fourth quarter on a seasonally adjusted annualised quarter-by-quarter basis. Compared with the fourth quarter of 2008, the economy grew by 3.5 per cent. It declined by 2.1 per cent for 2009 as a whole, in line with government and private sector expectations.
The MTI said the fourth-quarter setback was caused by a 38.4 per cent contraction in the manufacturing sector, on a quarter-by-quarter seasonally adjusted annualised basis, following an expansion of 29.6 per cent in the third quarter.
The ministry said the decline was mainly due to a contraction in the output of the biomedical and transport engineering industries. Electronics, chemicals and precision engineering posted positive growth.
Robert Prior-Wandesford, economist at HSBC in Singapore, said the numbers did not signal a return to recession, even though the quarter-by-quarter contraction was larger than consensus forecasts.
“Pharma production is notoriously volatile, as companies often shut temporarily to swap product lines, and is likely to bounce back strongly in early 2010. Production will also be boosted as a couple of new facilities are set to open during the year,” he said.
In Tokyo, Yukio Hatoyama, the Japanese prime minister, said his top priority was to stop the economy slipping back into recession by passing budget bills for the current financial year and the next.
“With the feeling that the economy must not be allowed to go into a double dip, that we will not allow it to do so … we compiled emergency measures and a second extra budget at the end of last year,” Mr Hatoyama told reporters.
“We want to bring this second extra budget into effect as soon as possible,” he said, adding that next year’s budget should also be dealt with quickly. Japan’s financial year runs to the end of March.
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