With Europe still fighting to put its debt crisis behind it and economic outlook in the U.S. looking uncertain amid still high unemployment and political infighting, many analysts have been looking to China and the rest of Asia to drive the economy forward. Amid growing regional demand for consumer goods and booming real estate markets, these analysts have had plenty of reasons for high hopes. Now, however, with manufacturing data on the decline across Asia, strong growth through the first quarter of 2013 is looking doubtful. Data showing sluggish Asian exports is possibly the biggest area of concern.
In China the Purchasing Managers Index (PMI) shows the Chinese manufacturing sector is barely treading water with a reading of 50.2. The PMI refers to a survey conducted among private sector businesses to determine production levels, speed of orders, new orders, and other factors that reflect manufacturing numbers. A reading about 51 points to moderate growth while a reading below 50 points to contraction. At 50.2 the PMI shows that the manufacturing sector in China is barely staving off contraction.
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This is worrisome given that the Chinese government has been working tirelessly through promised reforms to boost domestic demand and consumer consumption. With the manufacturing sector stalled it sheds doubt that the Chinese government’s efforts will have enough force and speed to stave off a decline in the short term. Further, if the manufacturing sector goes into decline, thousands of Chinese workers could be laid off or see their hours cut. This, in turn, could lead to unrest and instability in the world’s most populous nation.
If manufacturing in China were the only concern analysts could brush it off as a temporary blip. Other Asian nations, however, are reporting similarly depressing statistics. Singapore saw its exports plummet by a shocking 30.6%. While experts had been expecting a decline of roughly 18%, the 30 percent decline has caught many off guard. The electronics industry has been among the hardest hit, falling 27.4% and recording its seventh straight month of decline. Exports to both the EU and USA have dropped by over 50% YOY.
Singapore is a small nation home to only 5 million people, but the city-state is often viewed as a bell weather for economic trends. The nation’s position as a heavily export oriented nation and financial hub means that economic trends often show up first in the island before spreading throughout the rest of Asia. Unlike larger nations, the domestic market is too small to mask and absorb uncertainty in global markets.
Meanwhile Australia’s manufacturing sector has continued its 12 month free fall. The PMI in Australia came in at only 45.6, a shockingly low number that suggests a heavy contraction. This is an improvement from the PMI of 40.6 in January, but with 12 months of decline and being so far in the red, there’s no silver lining for the nation.
Malaysia has recorded mixed numbers over the last few months. In December the manufacturing sector suffered a steep decline but managed to recover through January. February export numbers are not yet available so it is unknown if the sector has been able to sustain growth.
With Asia’s manufacturing hubs slowing to such extremes amid a weak global recovery, the notion of Asia as the world’s next economic growth engine is coming under fire. While wealth and consumer spending has been on the rise it simply may not be enough to fuel global demand and sustain markets in the face of slow growth in the USA and the continuing economic recession in Europe. And if not Asia, then what region will propel economic growth through 2013? Europe seems down for the count, leaders in the USA are too busy fighting amongst themselves, and other regions do not appear to have the economic clout to drive economic growth forward.