Asian Manufacturing Shows Resilience

MARCH 1, 2012    THE WALL STREET JOURNAL

By MARTIN VAUGHAN

SINGAPORE—Asia's manufacturing sector is gaining strength, economic data released Thursday suggest, a message that could convince some central banks in the region that they don't need to rush into measures to support growth.

However, disappointing trade figures from India made clear that some parts of Asia are still suffering from slack demand in the West. In addition, weakness in China's banking and property sectors continues to pose risks to the region, economists say.

China's official Purchasing Managers Index, a key gauge of manufacturing activity, rose to 51.0 in February from 50.5 in January. It was the highest reading for the index since last September.

A reading below 50 indicates manufacturing activity contracted from the previous month, while a reading above 50 indicates expansion.

Taiwan's industrial activity rebounded strongly in February to 52.7 from 48.9 in January, growing for the first time in eight months, according to HSBC's survey of purchasing managers.

Global growth prospects are starting to improve. China, the U.S. and even the euro-zone are showing signs of expansion. But with oil prices rising, inflation fears might be rising too. Dow Jones's Alen Mattich examines the latest data. Photo: Getty Images

Tim Condon, head of Asia research at ING Financial Markets, said he expects governments to revise their 2012 gross domestic product forecasts higher in coming weeks. He also expects most central banks to remain on hold for the next several months, even those that had been preparing to ease policy if necessary to support growth.

"We got too bearish in the fourth quarter because of the situation in the euro zone and the resulting export weakness here," Mr. Condon said. He credits the European Central Bank's liquidity operations with "halting the panic and getting European consumers to buy things again."

Improving employment and consumer confidence in the U.S. in recent weeks also appear to be helping to firm up Asian exports.

South Korea swung back to a trade surplus of $2.2 billion in February after recording a trade deficit in January, with exports rising more than expected. Mr. Condon said the data will help persuade the Bank of Korea to keep policy settings where they are.

Manufacturing growth in India remained robust, with HSBC's February PMI coming in at 56.6 in February, only slightly slower than January's 57.5 reading.

But India's trade deficit widened to $14.8 billion in January from $10.3 billion a year earlier, as imports surged and exports failed to keep pace.

Inflation remains in check in most parts of Asia, giving central banks the luxury of keeping policy steady rather than having to tighten to stabilize prices.

Indonesia's consumer price index rose 3.56% in February from a year earlier, a slower pace than the previous month's 3.65%, and was virtually flat month-to-month. Thailand's CPI also eased slightly, rising 3.35% last month compared with January's 3.38%.

In China, despite the somewhat more upbeat external picture, some say warning signs are flashing. New yuan loans by China's four largest banks came in well short of market expectations for February, amid Beijing's efforts to cool the property market.

Nomura economist Zhiwei Zhang predicted the People's Bank of China will deliver a 0.25-percentage-point interest rate cut in March and 0.5-percentage-point cut in reserve requirements in April, driven by factors including the anemic loan growth and a likely lower PMI reading in March.

"We believe that the focus of policy makers has shifted from inflation to growth," he wrote.

Write to Martin Vaughan at martin.vaughan@dowjones.com