Asia factory output expands

Factory activity in Asia’s main economies expanded last month, with India and South Korea growing at their fastest pace in around two years although China showed some signs of weakening.

A pair of surveys of purchasing executives showed the pace of manufacturing growth in the world’s third biggest economy eased slightly in February, but economists said the recovery trend remained intact.

“Policymakers are driving with low visibility on the Chinese activity data at the moment,” said Brian Jackson, a strategist with Royal Bank of Canada in Hong Kong, adding that the timing of the Chinese New Year holidays complicated interpretation of data.

“So it would be premature to conclude that today’s fall in the headline PMI numbers show a broader easing in the momentum of China’s recovery.”

The Purchasing Managers’ Index (PMI) derived from a survey conducted by the China Federation of Logistics and Purchasing for the National Bureau of Statistics (NBS) fell to 52.0 in February, well below the median forecast of 55.45 in a Reuters poll and from 55.8 in January.

The Australian dollar dipped and copper prices pared their gains after the data, which markets took as a sign Chinese demand for metals and other commodities might be softening. Shanghai stocks, however, climbed in step with other Asian markets.

A separate survey conducted by research firm Markit for HSBC showed the PMI dipping to 55.8 from a record high of 57.4 in January.

PMIs for the euro zone and the United States are due to be released later in the day. Russia’s PMI eased a touch to 50.2 last month, but the index continued to show expansion for the second straight month.


India’s PMI rose to 58.5 in February, its strongest reading since June 2008, from 57.7 in January, boosted by expanding output and new orders.

“At 58.5, the headline index is consistent with ongoing double-digit gains in industrial production which in turn is likely to mean that spare capacity is being eaten into rapidly,” said Robert Prior-Wandesforde, Senior Asian Economist at HSBC.

Signs of supply-side constraints in labor and product markets were also emerging, which backed the case for further monetary tightening next month.

“In our view, it is time to start unwinding the monetary stimulus and we would be very surprised if the RBI were not to raise policy rates at the 20 April meeting,” said Prior-Wandesforde.

Price pressures were also building in South Korea, which saw its headline PMI rise to the highest level since December 2007. Input prices rose for the third straight month while output price index inched up to 51.8.

“HSBC’s Korea PMI suggests that price pressures are growing, something that official price series have not yet picked up,” the report said.

Bank of Korea Governor Lee Seong-tae warned last month that interest rates needed to be raised soon to head off inflationary pressures, but markets doubt he will act before his term ends next month.

The government has repeatedly expressed its opposition to an early interest rate increase, fearing it could threaten the country’s economic recovery and prompting investors to push back their expectations for a rate rise deeper into 2010.

Source: Reuters

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