China, Japan August factory surveys signal economic softness

Thu Aug 21, 2014 1:50am EDT
 
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By Xiaoyi Shao and Tetsushi Kajimoto

BEIJING/TOKYO (Reuters) - China's manufacturing activity hit a three-month low in August, raising the case for fresh policy steps to keep growth on track, while a Reuters poll showed Japan's economic recovery is likely to be modest despite a small acceleration in the factory sector.

Surveys conducted by HSBC/Markit and Reuters highlighted fragility in recovery of the world's second- and third-largest economies at a time when policymakers try to walk a fine line between supporting growth and pushing structural changes.

The HSBC/Markit Flash China Manufacturing Purchasing Managers' Index (PMI) fell to 50.3 in August from July's 18-month high of 51.7, badly missing a Reuters forecast of 51.5 but still hovering above the 50 threshold that separates expansion from contraction.

"The sharp drop in the PMI is perhaps not surprising given last month's disappointing activity and lending data. That said, we are not expecting a rapid deterioration in economic momentum," Julian Evans-Pritchard, China economist at Capital Economics, wrote in a note.

"Meanwhile, we expect the government to continue to fine tune policy as necessary to prevent growth from slipping too much over the coming quarters."

Most Asian stock markets, including Hong Kong and China, extended early losses after the PMI survey while the Australian dollar AUD=D4, often used as a liquid proxy for bets on China, fell.

A burst of policy stimulus steps since April lifted China's annual economic growth to 7.5 percent in the second quarter - in line with the full-year official growth target - from 7.4 percent in the first quarter - the weakest pace in 18 months.

But with conditions looking increasingly unsteady into the third quarter as policy support moderated, some analysts say even more stimulus may be needed in coming months to bolster growth and offset the downdraft from the housing market.   Continued...

 
A labourer works on piles of steel coils in Taiyuan, Shanxi province, February 22, 2013.  REUTERS/Jon Woo