PMI Showing Corroborates Downbeat Growth Outlook
The purchasing managers' index (PMI) release for Northeast Asian economies in August reaffirms our gloomy outlook on the region's economic trajectory in the months ahead. South Korea's print of 47.5 reflected the country's third straight month of contraction while Taiwan's print of 50 signalled 'no-change' in manufacturing conditions on the island. The region's weak showing comes even as we see signs of stabilisation in China's slowing economy. Both countries witnessed falls in production levels and forward looking indicators suggest that this decline is set to maintain its trajectory in the coming months. New orders (domestic and export) have been falling for successive months while backlogs fell markedly. Also, businesses have seen been scaling back on buying activity. In another sign of the weak state of economic activity, businesses have had also had to repeatedly reduce output prices to retain competitiveness.
Further indication of the region's economic trajectory can also be gleaned from the performance of Taiwan's and South Korea's core industries, which are well positioned across the region's supply chain. In Taiwan, semiconductor production and exports, rudimentary inputs into all electronics, have seen tepid growth at a time when the industry is supposed to hit a cyclical peak. In South Korea, its exports, which are more diversified and range from semiconductors to finished electronics products, machinery, autos, ships and petrochemicals, have seen growth fail to match up to expectations. These factors collectively point towards the fact that the purported economic recovery that many market observers have called for is unlikely to materialise. For these reasons, we are happy to retain our below consensus 2013 real GDP growth forecasts of South Korea and Taiwan at 2.1%.
|Recovery Not In Sight|
|Taiwan & South Korea - Purchasing Managers' Index (PMI)|