Has Asia missed a growth trick?

Manufacturing data out of Asia was comprehensively weak for all economies in April, a development which, given the pivotal role of exports to the region’s economy, could have uncertain implications. 

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Whether these readings mark the beginning of a downturn in the region's business cycle, global and Asian growth have entered a late stage of the economic cycle - or the March readings were simply an aberration - is still unclear.

"Although exports are important in any Asian economic cycle, it is especially so in the current environment.” 

The headline PMI dropped in all major economies except in the Philippines and Singapore. In South Korea, Malaysia, and Thailand, the PMI printed below the neutral level of 50.

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At ANZ, we have repeatedly stressed the pivotal role exports play in Asia's current economic cycle. Strong export activity is having a favourable feedback effect on profits and incomes, which in turn is helping growth broaden out to consumption and investment.

Although exports are important in any Asian economic cycle, it is especially so in the current environment.

The cycle began with multiple constraints including poor corporate profitability, high leverage and elevated unit labour costs. The sustained performance of exports was therefore critical to overcome these issues.

Up until this point progress has been good with both high-frequency indicators and gross domestic product data generally meeting or exceeding expectations.


Purchasing Mangers’ Index (PMI) figures moderately improved in Indonesia but remained in the contractionary zone of below 50.

At the pan-Asia level the fall in this sub-index was consistent with the drop in the new orders

for developed economies.

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Export performance for economies which have reported March numbers until now has been mixed and does not point to any imminent trend formation.

China, South Korea, India, and Indonesia have reported weaker on-year growth in exports in March.

Taiwan's exports were considerably stronger than anticipated. The trajectory of exports in India and Indonesia has generally been quite volatile and their performance cannot be regarded as an indicator for the region.

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Korea's export performance is more critical. Along with Taiwan, South Korea's export performance is considered as a bellwether for the region.

The country's exports increased by merely 6.1 per cent year on year and declined on a sequential basis.

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Product and geography-specific declines generally tend to be temporary. In this regard, we also note that while the new orders component of the developed economies' PMI has dipped, it remains at supportive levels.

Although there are anecdotal reports of slowing sales in some categories of consumer electronics, broader ratios such as global semi-conductor sales and inventory-shipment ratios remain resilient.

We will clearly need to monitor incoming data to conclude whether the region's export cycle is past its point of maximum.

Sanjay Mathur is Chief Economist, Southeast Asia & India at ANZ

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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