China’s Manufacturing Sector Expands While Rest of Asia-Pacific Rises

China’s Manufacturing Sector Expands While Rest of Asia-Pacific Rises
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China’s PMI reading came in at a healthy 50.8 in May. While this reading falls short of aspiring, it is welcome news after months of turbulence and general contraction. As Asia’s largest economy and the world’s second largest economy, events in China can have a major impact on economies across the globe. Indeed, China’s growth may already be buoying economies across the Asia Pacific.

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China may reemerge as engine of growth

China’s PMI reading of 50.8 suggests a slight expansion as any reading above 50 means the economy is growing. While the reading wasn’t spectacularly high for China, it was the highest reading of the year. First quarter growth came in at a solid 7.4%. This growth missed projections, but not by much.

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If China’ economy can continue to pick up steam, it should be able to drive growth across the region. China has become a major destination for goods produced across Asia, and also supplies many countries with finished manufactured goods. Meanwhile, with the economy in the United States growing, albeit slowly, and the Eurozone economy stable, Western export markets should remain strong for China.

The country is, however, facing the possibility of a property bubble pop. There are now far more homes on the market then buyers, or at least buyers willing to pay the sky high prices. A growing economy could alleviate pressure on the real estate market and even encourage people to buy homes. On the other hand, if the bubble does pop, it could drag down the entire economy.

For the next few months analysts will likely keep a close eye on the real estate market. If the market does sink, China’s economy will almost certainly suffer, and that in turn could have affects on countries across Asia.

Rest of Asia experiencing growth

Singapore, often seen as an “economic canary”, or quick way to get a pulse for economic prospects across Asia, enjoying solid growth in the first quarter. Growth weighed in at 4.9% (YOY) for the quarter. Manufacturing led the way, expanding 11.9%. High-end Singaporean components are often used in China to manufacture finished goods, so this could suggest that China’s economy is indeed growing again.

Meanwhile, Indonesia is seeing its currency markets stabilize after months of turbulence due to sequestering in the United States. A Bank Indonesia survey showed that consumers are increasingly confident in the country’s prospects. The Bank recorded a rating of 116.9, up from a previous reading of 113.9. Any reading above 100 suggests overall confidence.

Meanwhile, Japan enjoyed its fastest growth in over 3 years in the first quarter. The economy grew at an annualized rate of 5.9%, an astounding rate for such a fully developed country. This rate was almost certainly buoyed by a looming increase in the sales tax as various parties rushed to buy goods before the rate increase. Still, it marks the sixth straight quarter for the nation which has long wallowed through stagnation.

Thailand, on the other hand, has been a source of negative news as of late. Still, the country’s outlook is being affected more by the political situation in the country, rather than economic developments. The ongoing political instability, which has seen the government overthrown and the country taken over by the military, will certainly affect the economy, however the negative pressures will be born from political developments, not the global economy.

Land Down Under growing quickly

In Australia, economic growth is accelerating, largely on the back of the mining industry. The economy expanded by 3.5% in the first quarter, easily beating out expectations with some analysts expecting growth to come in at only 1%. Growth was up a solid 3.5% from a year earlier.

Still, some analysts are cautioning against too much optimism. For one, growth will need to be sustained for at least a few quarters before people can begin to breath easy. Second, it’s fair to wonder if success in the mining industry could be covering up stagnation or even decline in other industries.

Indeed, Australia’s own PMI indexes for manufacturing, services, and construction all indicate contraction weighing in at 49.2, 49.9, and 45.9 respectively.


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