China's Slowdown Reverberates

Asian Development Bank lowers its forecasts for the region’s 2012 growth.

China’s services industry expanded the least in more than a year, underscoring a slowdown that spurred the Asian Development Bank to lower its 2012 regional growth estimate and caused a slide in Australian coal exports.

The purchasing managers’ index from the Chinese government and logistics federation fell to 53.7 in September from 56.3 the previous month, a report showed today, while Australia recorded its widest trade deficit since March 2008 in August. The ADB today forecast Asia excluding Japan will expand 6.1 percent this year, the slowest pace since 2009.

Asian stocks fell and commodities declined for a second day, while Australia’s dollar slipped to its lowest level in nearly a month on concern global demand is faltering, putting pressure on authorities to support growth. Central banks in Japan, South Korea, Indonesia, Thailand, India and the Philippines are scheduled to meet this month to determine monetary policy as the region gauges the need for more stimulus measures.

“Deceleration in the region’s two giants -- the People’s Republic of China and India -- and in other major exporting economies is tempering earlier optimism,” the ADB said. “The ongoing sovereign debt crisis in the euro area and the looming fiscal cliff in the U.S. pose major risks to the outlook.”

Asia’s exports have faltered as slower global growth crimps demand for the region’s goods. Malaysia’s shipments abroad unexpectedly slipped for the first time in three months in July, while Thailand and South Korea have recorded three straight months of declines in overseas sales.

Policy makers have taken steps to shield their economies. India’s central bank unexpectedly reduced the amount of deposits lenders must set aside as reserves last month, while China and Vietnam have cut interest rates and South Korea announced 5.9 trillion won ($5.3 billion) of spending and tax relief.

U.S. Federal Reserve Chairman Ben S. Bernanke said this week the monetary authority will sustain record stimulus even after the expansion gains strength, while also saying policy makers don’t expect the economy to remain weak through 2015.

The ADB today reduced the region’s inflation forecast for 2012 to 4.2 percent from 4.4 percent, according to the Asian Development Outlook 2012 Update report. Its growth projection for this year compares with a July estimate of 6.6 percent and an April prediction of 6.9 percent, and is the lowest since 2009, according to the lender’s Chief Economist Changyong Rhee.

“If an extreme shock were to materialize, most economies in the region have room to use fiscal and monetary tools to respond,” the ADB said. “However, there is currently no region-wide need to pursue aggressive demand management. Rather, efforts should focus on the medium-term issue of continued soft external demand.”

 

‘More Pessimistic’

China’s manufacturing contraction persisted last month, Japanese industrial companies grew more pessimistic and South Korean exports fell, reports showed this week, signaling Asia’s biggest economies have yet to reverse their slowdowns. All of Asia’s eleven most-traded currencies except the Indonesian rupiah advanced against the dollar in the past three months as policy makers took steps to spur growth.

In the Asia-Pacific region today, Australian imports exceeded exports by A$2.03 billion ($2.08 billion) in August, while sales of newly built homes slumped to the lowest level on record also in August, separate reports showed. Singapore’s PMI slid to 48.7 last month, a third month of contraction, according to a release late yesterday.

Asian stocks fell, with the MSCI Asia Pacific Index down 0.4 percent at 1:11 p.m. in Tokyo. Most of the region’s major currencies slipped a second day.

A composite index of purchasing managers in the manufacturing and services industries in the euro area probably held at 45.9 in September, according to a Bloomberg survey. Retail sales in the region probably fell 1.9 percent in August from a year earlier, a separate survey showed.

In the U.S., private employers probably expanded payrolls by 140,000 in September, economists surveyed by Bloomberg predicted. The Institute for Supply Management’s index of U.S. non-manufacturing businesses probably fell to 53.4 last month, a separate survey showed.

Crude oil has fallen about 7 percent this year, helping ease price pressure. Inflation in Indonesia slowed for the first time in four months in September, while in Malaysia it has stayed at the slowest pace in more than two years. Still, South Korea reported a quickening last month, and the Philippine central bank has raised its price forecast for this year.

Growth in developing Asia will be 6.7 percent next year, the ADB forecast today, down from a previous estimate of 7.1 percent. Inflation will be 4.2 percent, slower than an earlier prediction of 4.4 percent, it said.

 

‘New Normal’

China will expand 7.7 percent this year, less than the previous forecast of 8.2 percent, the ADB said. India’s economy will grow 5.6 percent in the year ending March 31, it said, compared with the earlier estimate of 6.5 percent.

“We’re going to have to get used to non-Japan Asia as a whole growing at 6-7 percent,” Robert Prior-Wandesforde, a Singapore-based economist at Credit Suisse Group AG, said in an interview with Bloomberg Television after the report. “That’s the new normal I think, rather than the 8-9 percent that we had become used to.”

Asia can bolster growth by boosting its services industry, which accounts for almost half the region’s output and employs 34 percent of its workers, the ADB said in its report.

“Developing Asia must adapt to a moderate growth environment, and countries will need to do more to reduce their reliance on exports, rebalance their sources of growth, and increase their productivity and efficiency,” Rhee said.

 

Bloomberg News

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