Asian manufacturing activity slows in June

Agence France-Presse

Posted at Jul 01 2011 04:49 PM | Updated as of Jul 02 2011 12:49 AM

SHANGHAI - Manufacturing activity in Asia's emerging economies slowed further in June, data showed Friday, suggesting measures designed to cool explosive growth were taking hold in the region.

Export-dependent nations were also hurt by a continued weakness in demand from crisis-hit Europe and the United States while Japanese suppliers were still recovering from the impact of the March 11 earthquake and tsunami.

Growth in Chinese production almost stalled while India's figures hit a nine-month low as monetary tightening measures firmly put the brakes on two of the region's biggest and fastest-growing economies.

Taiwan data showed manufacturing activity actually contracted while South Korea was also crimped by inflation-fighting measures.

Beijing has been clamping down on bank lending to tame inflation, which hit a three-year high 5.5% in May, and avoid the economy blowing out of control as it has been expanding at nearly 10% a year.

China's manufacturing activity fell to an 11-month low of 50.1 in June from 51.6 in May, the British banking giant said in a statement, confirming preliminary data released last week, as Beijing tries to tame soaring costs.

The country's official purchasing managers index also fell for the third straight month to 50.9 in June from 52.0 in May, the China Federation of Logistics and Purchasing said earlier Friday.

A reading above 50 indicates the sector is expanding while a reading below 50 suggests a contraction.

"This implies that policy tightening is working, pointing to a peak of inflation in the coming months," HSBC chief economist Qu Hongbin said in a statement.

The figures will likely fuel concerns that the world's second-largest economy is heading for a hard landing as Beijing -- anxious about inflation's potential to spark social unrest -- tries to rein in food and housing prices.

"The continued easing in June PMI figures, mainly due to inventory adjustments, suggests economic growth is likely to continue to slow," Zhang Liqun, a government analyst, said in the CFLP statement.

Both surveys for China also show inflationary pressures -- a bugbear for policymakers -- eased last month. The official input prices sub-index, which measures the cost of raw materials, fell to 56.7 in June from 60.3 in May.

India's PMI fell to 55.3 in June -- from May's 57.5 -- marking its slowest pace so far this year while input costs rose.

The easing follows several interest rate hikes in the country, where the Congress-led government has vowed to tackle inflation -- even at the cost of slower growth -- to help the hundreds of millions of poverty-stricken.

The central bank raised its key interest rates last month after inflation hit a higher-than-expected 9.06% in May, from 8.66% the previous month, with food prices rising even faster.

"These numbers confirm that tight capacity and monetary tightening is constraining growth," Leif Eskesen, chief economist for India and Asean at HSBC, told Dow Jones Newswires.

Compounding problems for companies was Japan's March 11 twin disaster, which wrecked supply lines while the stuttering recovery in Europe and the United States from the global downturn also hit demand.

The earthquake and tsunami has "hurt a lot of manufacturers, they are trying to stretch out their inventories", Moody's associate economist Alaistair Chan told AFP.

"Also in the medium term you have got a downturn in the global economy."

South Korea's PMI slowed to 51.13 in June from 51.24 in May as Seoul treads a fine line between fighting inflation with interest rate hikes and trying to cap foreign inflows of cash it fears could destabilize the economy.

Manufacturing activity in Taiwan shrank to 49.9 in June from 54.9 in May.