Asian Manufacturing Slips in June
07/01/2012| 06:26pm US/Eastern
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-- China manufacturing PMI falls to 48.2, according to HSBC
-- Conditions worsen in Korea, Taiwan and Vietnam, HSBC says
-- Indonesia buffered by large domestic economy
Manufacturing activity in much of Asia slowed further in June while inflation remained tame, data showed Monday, pointing to the likelihood of more central bank easing to try to jumpstart economic growth.
A gauge of manufacturing showed China factory output slowed further in June, while similar surveys in South Korea and Taiwan showed manufacturing slipped into contraction, following several straight months of expansion.
India and Indonesia proved exceptions, showing more resilience in June to tough overseas conditions than other parts of Asia more dependent on exports, as manufacturing picked up pace in both economies.
"These data depict economies that are moving sideways. It reinforces the view that things aren't horrible, but they're not good either," said Tim Condon, chief Asia economist at ING Bank.
With recession threatening Europe and the U.S. economy still stuck in low gear, demand for manufactured goods from Asia has slowed significantly. Far from standing idly by, China's central bank has been loosening bank reserve requirements and cut interest rates in June in an attempt to stimulate domestic demand to offset the external slump.
Economists said it's likely the PBOC will soon unleash more easing measures. Citi economist Ding Shuang predicts two more rate cuts in the third quarter.
The final HSBC China manufacturing purchasing managers index fell to 48.2 in June from 48.4 in May. China's official PMI for June, released Sunday, came in at 50.2. The reading was slightly better than economists had forecast at 49.8, but was down from May's 50.4 showing.
A reading below 50 indicates a contraction in manufacturing activity from the previous month, while a reading above 50 indicates expansion.
Consumer price data shows inflation in much of the region is cooling, allowing policymakers to shift their focus to supporting growth, particularly in China and Korea, said ING's Mr. Condon.
Korea's consumer price index rose 2.2% in June over the previous year, slower than economists' prediction of a 2.4% rise, and slower than the 2.5% gain in May.
HSBC's PMI gauge for Taiwan fell to 49.20 last month from 50.50 in May, its first contraction since January.
The bank's June reading for South Korea slipped to 49.4, from 51.0 the previous month.
In Vietnam, manufacturing conditions worsened even more sharply, with HSBC PMI dropping to 46.6 from 48.3 in May.
By contrast, manufacturing activity in India was strong in June, helped by new order inflows. HSBC PMI for Asia's third largest economy rose to 55.0 from 54.8 in May.
Indonesia's HSBC PMI rose to 50.2 in June from 48.1 in May.
"The June report underscores the extent to which domestic demand is helping to buffer the economy against ongoing external headwinds," HSBC economist Su Sian Lim said in a note on the Indonesia data.
Indonesia also bucked the regional trend on inflation, with a 4.53% rise in the CPI in June, up from 4.45% in May.
Write to Martin Vaughan at martin.vaughan@dowjones.com
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