JAKARTA, Dec 1: Factory conditions deteriorated across much of Asia in November, with activity in China sinking to a three-year low, as policymakers braced for an expected rise in U.S. interest rates later this month that could jolt the global economy.
Business surveys showed few signs of vigor across the trade-reliant region apart from Japan, with sluggish demand at home and abroad forcing manufacturers from China to Indonesia to throttle back production, cut selling prices and shed more jobs.
"Asia's economy looks decidedly wobbly going into year-end. Exports continue to struggle amid sluggish demand in the West and other emerging markets," said HSBC economist Frederic Neumann.
"A Fed rate hike would represent a further pinch. With growth having been highly credit dependent in recent years, higher interest rates in the U.S. will inevitable add to the region's challenges."
Global policymakers and investors are bracing themselves for the first hike in U.S. rates since 2006, which most analysts see coming at the Federal Reserve's Dec. 15-16 meeting.
After many months of speculation, a rate increase might remove some of the uncertainty that has caused large swings in emerging-market currencies and stock markets, but Asian exporters will be on edge, hoping rising U.S. rates at a time of global weakness will not backfire and stunt demand in one of their biggest markets.
"Industrialized Asia is still feeling the hurt from reduced external demand," said Barclay's economist Wai Ho Leong. "The U.S. is providing some year-end festive lift but these economies are saddled with high inventories which take time to clear."
On the whole, there was little in Tuesday's Asia surveys numbers to cheer about. Business conditions did not deteriorate as badly in some countries as in past months, but there were scant signs of any recovery.
China's official Purchasing Managers' Index fell for a fourth month in a row in November, hitting its lowest level since August 2012, as new export orders dropped for the 14th month.
A private survey, the Caixin/Markit China PMI, which focuses on small and mid-sized companies, edged up to its highest reading since June, but still pointed to a ninth month of contraction.
However, a pickup in services activity in a similar official survey offered some hope that the sector would offset persistent weakness in "old economy" growth drivers such as manufacturing.
Many of China's major trading partners and global suppliers of goods from iron ore to excavators had hoped for some signs of improvement in the economy in the fourth quarter, but Nomura economists said the weak PMI findings suggest November official data in coming weeks will largely remain on the soft side.
Facing what could be its slowest pace of economic expansion in a quarter of a century, China has slashed interest rates six times in the past year as part of its most sweeping stimulus efforts since the global financial crisis, and more easing is expected next year. ?Reuters