Asia's manufacturing powers stutter, stir talk of policy support

Tue Apr 1, 2014 6:35am EDT
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By Adam Rose and Leika Kihara

BEIJING/TOKYO (Reuters) - Asia's major economies finished the first quarter on a weak note with manufacturing surveys in China and Japan fueling expectations that policymakers will be forced to act in coming months to prop up faltering growth.

In China, the final Markit/HSBC Purchasing Managers' Index (PMI) gauge of factory activity, fell to an eight-month low of 48.0 in March. It has remained below the 50 level, which indicates contraction, since January.

The official survey geared towards bigger, state-owned firms, showed a marginal increase to 50.3 from 50.2, but economists warned that given seasonal patterns this was a sign of further weakness rather than improvement in the world's second-biggest economy.

In Japan, the closely watched central bank tankan survey showed business sentiment barely improved in the three months to March and was set to sour this quarter following an increase in sales tax that took effect on Tuesday.

Investors are betting China will look to arrest the loss of momentum after what has shaped up to be its worst quarter in five years, by boosting or bringing forward spending on some infrastructure projects. Japan's weakening corporate sentiment also helped keep alive market expectations that the Bank of Japan (BOJ) will boost its massive monetary stimulus in coming months to sustain recovery in the world's third-largest economy.

"The final reading of the HSBC China Manufacturing PMI in March confirmed the weakness of domestic demand conditions," said Hongbin Qu, HSBC's chief China economist, in a statement accompanying the survey.

"We expect Beijing to fine-tune policy sooner rather than later to stabilize growth."

Expectations that Beijing will turn on the taps with government funds and credit sent the MSCI's broadest index of Asia-Pacific shares outside Japan to a four-month high.   Continued...

A labourer works inside a factory in Qingdao, Shandong province, February 15, 2014. REUTERS/China Daily