Asian exports are healthy, but some see a downturn looming
Manufacturing gathering pace, according to Nikkei purchasing managers index
JOYCE HO, Nikkei staff writer
HONG KONG Exports have been growing at a healthy pace in Asia, and the region's manufacturing sector started the second quarter on a stronger footing, with all except two of the 12 economies surveyed by The Nikkei registering broad-based improvement.
Leading the region was Taiwan, whose Manufacturing Purchasing Managers' Index recorded its 11th consecutive month of expansion in April at 54.4. A measure above 50 indicates expansion, while anything below signals deterioration.
Although Taiwan's latest upturn -- weighed down by a slower expansion in output and new orders -- was the least impressive since October, overall growth momentum remained solid, reflected by companies' persistent need for extra workers and vigorous purchasing activities. A continuing surge in work volume has led producers to stay upbeat on market demand. Their business confidence level remained elevated in April, unchanged from March's 26-month high.
The rest of Asia likewise saw their manufacturing activities gather pace. The headline reading of the Nikkei ASEAN Manufacturing Purchasing Managers' Index ticked up 0.2 point on the month to 51.1 in April, hitting a 33-month high.
While Indonesia posted the strongest output since June 2016 in April, Malaysia ended its 24-month contraction as orders both at home and abroad rose to the highest in more than two years. "China, Europe, Japan and the Middle East were all notable sources of new sales success," said IHS Markit, which compiled the survey.
However, some analysts believe the export recovery will only be short-lived. Nomura International, for instance, said the recent rebound was largely driven be cyclical factors, which will nevertheless ebb from the second quarter. These factors include commodity demand that has so far been largely underpinned by China's need for inventory restocking as well as a smartphone-related electronics upcycle.
"We expect [producer price index] disinflation to slow Chinese inventory restocking in [second-half] 2017," Rob Subbaraman, chief economist for Asia ex-Japan at Nomura, wrote in a note on May 4. He added that the recent tightening of property-related macro-prudential measures will slow the country's growth during the second-half of the year, and "the currently hot Chinese demand for smartphones is likely to cool in 2018."
THAILAND'S DOWNTURN In contrast to the upswing in the region, Thailand saw its headline PMI last month deteriorate to 49.8 -- the first contraction since November, when the country was gripped by the death of King Bhumibol Adulyadej in October. "Growth in both output and new orders slowed from March to marginal rate of expansion in April, which were insufficient to prevent drags from lower employment, reduced inventories and less hectic suppliers from dampening the sector's performance," said Bernard Aw, IHS Markit's economist, who also noticed excess capacity in Thailand's manufacturing sector.
According to a report by Natixis, which covers the 1,200 largest listed companies in Southeast Asia and compares them to their global peers, Thai companies are the healthiest in terms of operating income and debt repayment ability. However, such soundness, ironically, is the result of stagnant capital expenditure and the accommodative monetary policy by the nation's central bank.
"Despite having second to lowest interest rates in ASEAN, Thai companies cannot be tempted to increase investment as they are cautious about future growth prospect," Trinh Nguyen, senior economist for emerging Asia at Natixis, told the Nikkei Asian Review. "This is likely attributed to expected worsening of demographic trends, high household debt level and uncertainty regarding the political landscape, to name a few examples," Nguyen added.
"With weak private sector investment, we do not expect economic growth to accelerate meaningfully," said Nguyen, forecasting the country's first-quarter economic growth to be roughly 3% on the year and 3.2% for all of 2017.