SINGAPORE -- Manufacturers in Asia feel less confident in their business outlook for the coming months as the trade dispute between the U.S. and China deteriorates, the latest Nikkei Purchasing Managers’ Index survey shows.
The monthly PMI survey asks companies in Asia about changes in output, orders and other business conditions compared with a month earlier. It also asks about their business outlook.
The Future Output Index, an indicator of output outlook in 12 months’ time, for the Association of Southeast Asian Nations fell from June's 63.9 to 63.5 in July, the lowest level since the index began in June 2012.
ASEAN’s Future Output Index stayed above 70 until early 2017, but has been decreasing gradually since then. This year, as signs of a possible U.S.-China trade war emerged, the confidence index started to decline further. The tensions escalated in July, with both countries imposing additional tariffs on a wide range of goods, and the situation could be prolonged.
“Rising concerns of a global trade war could affect demand for ASEAN manufactured goods, which in turn would affect output,” said Bernard Aw, an economist at IHS Markit, which compiles the PMI survey.
Southeast Asian nations are mostly reliant on trade, with manufacturers playing important roles in the global supply chain. According to a recent report by Singapore’s Oversea-Chinese Banking Corp., Myanmar (28% of total trade), Laos (25%), Vietnam (22%) and Indonesia (18%) are the countries that trade most heavily with China. On the other hand, Vietnam (12%), Malaysia (11%) and the Philippines (10%) are the most exposed to the U.S.
OCBC’s report also points out that East Asian economies, such as Japan, South Korea and Hong Kong, are more vulnerable to the U.S.-China trade war as they export mostly intermediate goods to China.
In July PMI, the Future Output Index for Taiwan also dropped to a 22-month low of 55.2 from June’s 59.3, while South Korea’s marked a 10-month low of 54.2. Japan's figure also fell for the second month in a row to 58.1. Hong Kong’s figure, which covers non-manufacturers as well, fell to 43.7 from 46.3, marking the lowest level since December 2016. Hong Kong respondents cited the U.S.-China trade tensions as a common reason for pessimism, according to the survey.
In contrast, the outlook index for Indian manufacturers, who are less vulnerable to the U.S.-China trade dispute, rose to 61.1 in July from 58.1 in June.
As far as July’s trade-related data is concerned, the impact of trade wars is still invisible, with most countries and regions marked expansion in their overseas demand. The New Export Orders Index for South Korea was 50.1, for Taiwan 53.1 and for ASEAN 50.7, exceeding the 50.0 unchanged level.
Krystal Tan, an economist at Capital Economics, said, "There were no clear signs in the PMI surveys that suggest the first tranche of U.S. tariffs on Chinese goods that came into effect in early July have had a significant impact on the rest of the region."
Trade wars, however, could affect not only trade volume itself but also investors confidence in emerging markets. If situation further deteriorates, there might be further decline in the Future Output Index in the PMI surveys later this year.
The Nikkei PMI covers 12 countries and regions, providing 15 sets of indexes. Overall, July PMI showed deterioration or slower growth in most economies, with 11 of the 15 dropped from June’s figure. Vietnam topped the list at 54.9, while Myanmar marked the lowest at 47.9. The July figures also showed continued inflation in most economies.
A PMI over 50 shows business expansion, while one below 50 shows contraction.
