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Saturday, January 03, 2015, Poush 20, 1421, Robiul Awal 11, 1436 Hijr

China factory slowdown a force for disinflation
Published : Saturday, 3 January, 2015,  Time : 12:00 AM,  View Count : 5

SYDNEY, Jan 2: 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 per cent 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."
Disinflation was a feature across much of the region.
India's PMI showed input prices slumped to a near six-year low, even as overall manufacturing activity picked up to its fastest in two years.
The HSBC PMI, compiled by Markit, rose to 54.5 in December from 53.3, the 14th straight month above the 50-mark that separates growth from contraction.
Yet India's annual inflation rate has slowed to only 4.38 per cent, the lowest since the government started releasing the data in 2012 and potentially a green light for easing by the Reserve Bank of India (RBI).
"With the disinflationary trend gaining ground, the RBI is expected to find space for some rate cuts in 2015," said Pranjul Bhandari, chief India economist at HSBC.
In South Korea, consumer prices grew at the slowest clip in more than 15 years in December, opening the door for further rate cuts there.
Its version of the PMI contracted slightly but did show some improvement in December to stand at 49.9, from 49.0 in November.
Indonesia was not even that fortunate as its PMI slipped to 47.6 in December, the lowest since the survey began in April 2011 and a third consecutive month of contraction.    ?Reuters

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