Asian manufacturing growth hits four-year high
Manufacturing output across a swathe of Asian economies is expanding at its fastest pace for four years, in a further sign of the improving health of emerging markets.
Stripping out China and India, output across emerging Asia was 10.3 percent higher in the three months to December than in the prior quarter, on a seasonally adjusted annualized basis, according to analysis by JPMorgan, FT reported.
The figure is a sharp pick-up from the start of 2016, when manufacturing production was contracting, and is the highest reading since a short-lived spike in output in December 2012 and January 2013.
It is the latest sign that emerging market economies may be returning to rude health after a period of sub-par performance. Earlier this week, the Institute of International Finance — an industry body — suggested the economic growth across EMs hit an annualized pace of 6.4 percent in January, the strongest reading since 2011, while UBS said EM exports are growing at a pace of four-five percent.
“I think there is something fundamental going on,” said David Hensley, analyst at JPMorgan, who believed the pick-up in the manufacturing data was more than a temporary blip.
“Growth rates in emerging markets have probably hit the bottom. We are see a capital investment cycle finally after years of stagnation, and that is helping manufacturers in Asia. There have been some pretty impressive output gains for several months now,” he added.
William Jackson, senior emerging markets economist at Capital Economics, agreed that manufacturing activity was strengthening, something he attributed to the ending of recessions in Brazil and Russia and early signs that the US, Germany and China might be increasing their demand for imported goods.
“From the data we have, manufacturing in emerging Europe and Asia strengthened at the end of last year, while the pace of contraction eased in Latin America,” Jackson said.
According to JPMorgan’s data, the gains have been fairly widespread across emerging Asia, with the exception of its two most populous nations.
In the three months to December, the Philippines saw a 26.6 percent rise in manufacturing production over the previous quarter, in seasonally adjusted annualized terms, according to JPMorgan.
Singapore enjoyed a rise of 24.4 percent on the same basis over the same period, and Taiwan 10.8 percent. In Thailand, output rose 11.4 percent in the three months to November, with data for December not yet available.
Hensley said Asia was benefiting from a rise in both domestic and global capital spending, which was bolstering demand across a range of sectors,
rebalancing the region’s
manufacturers away from an over-reliance on the smartphone market.
“The underlying issue has been lack of capital spending from businesses globally. That is what has changed. The capital spending cycle is turning and that is replacing smartphones with more durable demand,” said Hensley, who sees manufacturing output continuing to outstrip historical norms for some time to come.
“Financial conditions eased a bit last year after several tough years and that has promoted growth, especially on the
domestic demand side,” he added.
Alex Wolf, senior emerging market economist at Standard Life Investments, believed three factors were coming together to boost EM capital spending: a general improvement in global economic activity; the rise in commodity prices, which is spurring a rebound in capex in hard-hit commodity exporting countries; and an increase in capex by US technology companies, which is bolstering activity in supply chain countries such as China, Taiwan and South Korea, particularly given that inventory levels have fallen sharply.
Hensley argued that “the stage is set for a huge increase” in business equipment spending, in Asia at least.
Business equipment spending in emerging Asia, excluding China and India, rose at an annualized rate of more than 20 percent in the fourth quarter of 2016, driven by sharp rises in South Korea, Indonesia, Taiwan, Malaysia and most of all the Philippines, where it jumped 41.5 percent.
However, the nascent recovery in manufacturing production is uneven. According to JPMorgan, activity in China is lagging somewhat, with annualized growth of six percent in the fourth quarter.