Asian factory output paints a bleak picture

Asian factory output remained weak in December, with Chinese manufacturers narrowly avoiding contraction and South Korea's industrial production shrinking the most in almost three years, while Europe data this week is expected to point to a recession. India, however, saw strong factory activity in December that defied recent weakness in Asia's third-largest economy. Meanwhile, housing and jobs data from the US last week showed the world's largest economy gaining momentum heading into the New Year. Slower decline Article continues below Export-reliant Taiwan saw its manufacturing sector contract for the seventh straight month to 47.1, according to the HSBC Taiwan Purchasing Managers' Index (PMI) for December, but the rate of decline slowed. "Although production and new business inflows are still declining, the pace of deterioration eased across the board for the second straight month," HSBC economist Donna Kwok said of the Taiwan data yesterday. "Half a year of inventory de-stocking means that a small boost for production could be around the corner soon." Worries have grown that China, the world's second-largest economy, is headed for sharply slower growth, undermining its ability to offset looming recession in debt-laden Europe and an uncertain US recovery. China's official purchasing managers' index, released yesterday, edged up to 50.3 in December from 49 in November. Policy measure Similar data released on Friday — the HSBC Purchasing Manager's Index, designed to preview the state of Chinese industry before official output data are published — showed manufacturing inched up to 48.7 in December from a 32-month low of 47.7 in November, but fell just short of the flash reading of 49. This added to expectations that Beijing will take policy measures to support growth. Ratio cut likely China is widely expected to announce a cut in the required ratio of reserves it demands commercial banks hold, after cutting it by 50 basis points on November 30 from a record high of 21.5 per cent. That was the first cut in rserve ratio rate for commercial lenders in three years, a policy shift after a vigorous tightening campaign to curb inflation which hit a three-year high of 6.5 per cent in July. Manufacturing data from Europe this week is also expected to be weak, with a Reuters poll last month forecasting Eurozone composite PMI at 47.9 for December, an improvement from the 47 in November but still below the 50 mark that separates growth from contraction. Manufacturing surges India, with its soaring inflation and dramatic slowdown in growth in recent months, may see an end to the central bank's long-running policy tightening. The country's manufacturing activity surged to a six-month high in December, helped by a spike in factory output and new orders. The HSBC Markit India Manufacturing PMI jumped to 54.2 from 51.0 in November, its biggest monthly rise since April 2009. The index has stayed in growth territory for 33 months now. The PMI came closest to suggesting a contraction in September when it dipped to 50.4. Official data released last month showed industrial output in India plunged 5.1 per cent in the year to October, its steepest fall since March 2009, raising fears the economy might be heading for a hard landing.