Asia factories shake COVID gloom, China shines

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TOKYO (Reuters) – Asian factories continued to shake off the coronavirus gloom in August, as brighter signs in China raised hopes of a firmer recovery in global demand, reducing pressure on policymakers to that they take bolder steps to avoid a deeper recession.

FILE PHOTO: A worker works on a production line at a factory of a ship equipment manufacturer in Nantong, Jiangsu province, China March 2, 2020. China Daily via REUTERS

Manufacturing activity in China grew at the fastest pace in nearly a decade in August, as factories increased output to meet rising demand, according to a private survey. New export orders increased for the first time this year.

The optimistic results contrasted with an official survey on Monday, which showed Chinese factory activity grew at a slightly slower pace in August.

But fears of a resurgence of infections in some economies may discourage companies from stimulating capital spending and delay a sustained rebound for the Asian region, some analysts say.

“In most of the major economies except China, factories are still operating well below pre-pandemic capacity levels,” said Ryutaro Kono, chief economist of Japan at BNP Paribas.

“The recent recovery is largely due to pent-up demand after the lockdown was lifted, which will decline in the future.”

The China Caixin / Markit Manufacturing Purchasing Managers Index (PMI) rose to 53.1 in August from 52.8 in July, marking the strongest rate of expansion since January 2011.

Japan and South Korea both saw factory output contract at the slowest pace in six months in August, raising expectations that the region’s export powers surpassed their worst after the collapse of demand after the COVID-19 strike.

The spillovers to other parts of Asia, however, remain uneven. While manufacturing activity increased in Taiwan and Indonesia, it declined in the Philippines, Vietnam and Malaysia.

Indian industrial production rose in August for the first time in five months as the easing of lockdown restrictions boosted demand. But analysts do not expect a rapid recovery in the economy, which contracted to its fastest pace on record in the last quarter.

PANDEMIC, CUSHIONING POLICY

The world economy is gradually emerging from the recession caused by the health crisis, in part thanks to massive fiscal and monetary stimulus programs.

But many analysts expect any recovery to be weak, as new waves of infections hamper business activity and prevent many countries from fully reopening their economies.

In Australia, the central bank unexpectedly extended a program on Tuesday to provide lenders with low-cost financing as the virus-hit economy braced for its worst contraction since the Great Depression.

Japan’s final PMI at Jibun Bank Manufacturing fell to seasonally adjusted 47.2 in August from 45.2 in July, marking the slowest contraction since February.

The survey followed data on Monday showing factory production rose in July at the fastest rate on record, as automakers ramped up production after facing plant closures in recent years. month.

South Korea’s PMI also rose to 48.5 in August from 46.9 in July, the highest value since February, although it remained below the 50-mark threshold that separates growth from contraction for an eighth consecutive month.

As South Korea’s exports fell for a sixth straight month in August, trade data – the first to be released among major exporting economies – pointed to a gradual pick-up in global demand.

“Exports will continue to recover in the second half of the year and turn positive next year,” said Chun Kyu-yeon, economist at Hana Financial Investment. “Global demand is clearly showing a recovery as well as an economic recovery,” she added.

Some analysts caution against being overly optimistic.

The latest findings from South Korea’s PMI did not fully reflect a recent resurgence of national coronavirus inflections in mid-August.

Japanese companies cut capital spending the most in a decade in the second quarter, data showed Tuesday, a sign that the pandemic was sapping businesses’ appetite to spend.

Japan is also in the midst of a change of leadership after Prime Minister Shinzo Abe announced last week that he would step down, raising uncertainty over the political outlook.

“There is … a risk that the leadership transition will lead to a period of paralysis and political uncertainty, if Japan experiences a series of frequent changes in the office of prime minister, as happened before 2012,” Fitch Ratings said in a research note.

Reporting by Leika Kihara; Edited by Shri Navaratnam

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