Asia's factories struggle for momentum amid soft Chinese demand

Asia's factories delivered a largely patchy performance in January, surveys showed on Thursday, as soft Chinese demand left the region's economies on a shaky footing at the start of 2024.
China's private Caixin/S&P Global manufacturing purchasing managers' index (PMI) stayed at 50.8 in January, unchanged from December and exceeding the 50-point mark that separates growth from contraction.

The reading contrasted with an official survey that showed manufacturing activity contracted for the fourth straight month. Deflationary pressures were also a lingering blight in the world's second-largest economy, suggesting underlying weakness in demand. Taken together, they point to a still-underperforming economy and back market expectations for more policy support measures this year. The picture was patchy for Asian economies with some bearing the brunt of soft Chinese demand better than others. South Korea's factory activity expanded in January for the first time in 19 months on improved demand for goods in key markets such as the United States and China.

But activity shrank in Taiwan and Malaysia, and expanded at a slower pace in the Philippines, the surveys showed. "For countries like South Korea, the hit from weak Chinese demand was offset somewhat by the resilience in exports to the United States," said Toru Nishihama, chief emerging market economist at Dai-ichi Life Research Institute. "But both external and domestic demand appears weak in China. That means the global economy lacks a key driver of growth, which bodes ill for Asian economies," he said.

Manufacturing activity in Japan also shrank for an eighth straight month in January as output and new orders slumped, with some analysts warning of the hit from production suspension at Daihatsu, a unit of auto giant Toyota Motor Corp, opening a new tab. The Toyota group's output plan has a critical impact on Japan's economy as it affects many parts suppliers spread across the country. Japan's industrial output rose in December but manufacturers surveyed by the government expect output to plunge 6.2 per cent in January, data showed on Wednesday, with a government official citing the impact of Daihatsu's production suspension.

The International Monetary Fund on Wednesday revised up its growth forecast for Asia to project an expansion of 4.5 per cent this year, driven by robust U.S. demand and the boost from expected stimulus measures in China. But it said the recovery would be divergent across economies with Japan likely to see growth slow to 0.9 per cent, in contrast to an expected 6.5 per cent expansion in India. The IMF expects China's economy to expand 4.6 per cent this year, slowing from 5.2 per cent in 2023.