China factory slowdown a force for disinflation, Asia faces softer demand

Fri Jan 2, 2015 1:52am EST
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By Wayne Cole

SYDNEY (Reuters) - China's growth engine looks to have ended last year on a flat note as its massive factory sector sputtered in December, though ebbing price pressures also offered scope for more policy stimulus from Beijing and across much of Asia.

The tale was similar from Singapore to South Korea to Indonesia as manufacturers struggled with weak demand, both at home and abroad.

China's official Purchasing Managers' Index (PMI) slipped to 50.1 in December from November's 50.3, its lowest level of the year and just above the 50-point level that is supposed to separate growth from contraction.

There was better news from China's services sector, which accounts for close to half of the economy, where the PMI edged up to 54.1 in December from November's 53.9.

Yet many analysts suspect economic growth for all of 2014 will undershoot the government's 7.5 percent target, marking the weakest expansion in 24 years.

With factories able to make more than consumers wanted to buy, the pressure was intense to cut prices.

"The price measures show very strong disinflationary forces," said analysts at Nomura.

"With no inflation pressure, we expect more policy easing in the first quarter, including a 50 basis-point cut in the bank reserve requirement ratio, to shore up domestic demand."   Continued...

An employee works at a machine manufacturing factory in Huaibei, Anhui province, September 1, 2014. REUTERS/Stringer