03/01/2009 17:23 - (SA)
Hope fades as jobs, output fall in China, India and Russia
FACTORIES in China, India and Russia slashed output and jobs at a record pace last month in another sign that the world’s largest emerging markets are wilting under the recession that has been gripping most industrialised nations.
Factory activity surveys in the United States and Europe, due to be released at the weekend, were expected to show steeper contractions in December as domestic demand collapsed, crushing growth in many of the developing nations that had been relying on Western consumption.
Economists and policymakers had seen the upcoming nations of China, Russia, India and Brazil – with their vast markets and rising wealth – as the engines of growth that could save the world from recession.
Those hopes are fading fast, however, and forecasts are getting gloomier.
South Korea warned exporters that 2009 would be tougher than last year, and Singapore said its export-dependent economy might shrink by two percent next year. Citigroup said the city state’s economy, which has been a bellwether for global trade, was set to shrink by 2.8 percent, the steepest drop in its history.
Everywhere there were signs, from job losses at Chinese factories to the biggest drop in Korean house prices in five years, that an export slowdown was rippling through domestic economies.
“What is worrying is that the weakness has spread rapidly from the externally oriented sectors to domestically oriented sectors too,” analysts at OCBC Bank in Singapore said in a statement after the country had announced its gross domestic product data.
In contrast to the rapidly darkening economic outlook, however, the mood in markets has brightened slightly.
Having squirrelled cash away in safe havens for much of the past quarter, investors are now eyeing assets that were pummelled in the financial turmoil of last year.
Asian shares and the Australian and New Zealand dollars gained on Friday, while the Swiss franc and US treasury bonds eased in a tentative sign that the appetite for risk is growing again after a year in which $14 trillion (about R138 trillion) was wiped off the books of stock investors.
“It feels like we have passed through the eye of the storm,” Robert Rennie, chief currency strategist at Westpac in Sydney, said about the financial crisis triggered last year by US bank failures.
“That’s not to say there isn’t another storm on the horizon, but for the moment the intense pessimism of October and November seems to have eased.”
For Chinese factories and policymakers seeking to contain an economic slump there was much cause for pessimism.
Manufacturing activity fell for a fifth month as the global financial crisis bludgeoned demand for exports, the Purchasing Managers’ Index (PMI) showed on Friday.
The index rose to 41.2, up from its record low of 40.9 in November, indicating that while manufacturing was still shrinking, the pace had slowed from November’s record.
The output sub-index fell to 38.6, signalling the sharpest contraction in production since the survey was launched in April 2004.
“With five back-to-back PMIs signalling contraction, the manufacturing sector – which accounts for 43 percent of the Chinese economy – is close to technical recession,” said Eric Fishwick, the head of economic research at CLSA, which publishes the index.
For Chinese policymakers worried about social stability, the most alarming news might have been the employment sub-index, which showed factories shedding jobs at the fastest pace on record.
PMIs in Russia and India offered similarly grim readings, with headline, employment and output indexes sinking to record lows.
The contraction in Russian manufacturing is deeper than the slump seen during the 1998 financial crisis that saw bank collapses and a default on sovereign debt.
In India, factories cut jobs for the first time in the survey’s 42-month history, to reduce costs.
In all three countries, factories reported slumping export orders with recession chilling demand in their largest markets – the US, Japan and Europe.
Manufacturing PMIs for the eurozone, Britain, Switzerland and the US were due to be released imminently, and economists expected all to stay below the 50 mark that divides contraction from expansion.
Smaller Asian exporters are bracing for a double whammy from the collapse in Western demand and the shockwaves that are rippling through major customers in Asia, China and Japan.
South Korea, which ships a fifth of its exports to China, said export growth this year would be about one percent, the weakest since 2001.
Exports in December dropped 17.4 percent from a year earlier – more than economists had expected.
Singapore’s economy contracted at a seasonally adjusted, annualised pace of 12.5 percent during the October-December quarter, following a revised 5.4 percent decline in July-September.
The government cut its economic forecast to a range between a decline of two percent and growth of one percent in 2009, compared with a range that went from a contraction of one percent to growth of two percent predicted in November.
Citigroup said that forecast was still too optimistic.
“If we are correct, 2009 will mark the most severe recession in Singapore’s history, surpassing the Asian financial crisis and the tech recession in 2001,” said an economist at Citigroup, Kit Wei Zheng. – Reuters
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