Eurozone debt crisis slows Asian progress

Ben Southwood
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THE FALLOUT from the Eurozone crisis has now spread to East Asia including the world’s second largest economy, according to data released yesterday.

The HSBC Chinese manufacturing Purchasing Managers’ Index (PMI) for June dipped to a seven-month low of 48.1. Any value below 50 marks a contraction, and yesterday’s result means the index has now declined for eight consecutive months. Meanwhile, the sub-index for new export orders saw the most dramatic fall, to 45.9 – its lowest level since March 2009.

HSBC’s Hongbin Qu, warned that “exports are likely to decelerate in the coming months” and expects “more decisive policy stimulus to reverse the slowdown”.

Mark Williams and Qinwei Wang of Capital markets judged that “with risks to foreign demand mounting, and a sensitive political transition approaching, policymakers are like to ease further.”

Similarly in Japan manufacturers were pessimistic for the first time in four months, a Reuters poll found yesterday. A triple whammy of a strong yen, slowing emerging markets, and the Eurozone crisis all took their toll on manufacturers’ sentiment, which fell to minus three, having been at plus two in May. On the other hand the index showed positive values for non-manufacturing industry, with optimistic responses outweighing pessimistic ones.

Kyohei Morita and Yuichiro Nagai at Barclay’s said the non-manufacturing result “reaffirmed the strength of domestic demand.”

Despite Japan’s macro weakness “the yen remains a superior safe haven currency than the dollar”, harming competitiveness, added Investec’s Lee Mc darby.