Slowing demand in the U.S., Europe and China could hurt Asian exporters, HSBC says
- According to HSBC's top Asia economist, Asian exporters will face considerable obstacles as demand from major markets such as the United States, Europe, and China slows in the coming months.
- According to Frederic Neumann of CNBC's "Squawk Box Asia" on Monday, Manufacturers in Europe are already cutting back drastically, particularly in Germany.
- "Remember that Europe is a significant export market for Asian exporters," the analyst said.
According to HSBC's top Asia economist, Asian exporters will face considerable obstacles as demand from major markets such as the United States, Europe, and China slows in the coming months.
According to Frederic Neumann on Monday, manufacturers in Europe are already pulling back substantially, particularly in Germany.
"Remember that Europe is a significant export market for Asian exporters," the analyst said.
"We also anticipate a drop in shipments in the second part of the year, which will complement the shift in US spending away from goods. The declining economies of the United States and Europe would drag on Asian exporters," he said.
According to Neumann, the slowing Chinese economy would exacerbate the region's exporters' challenges.
"The trade data plainly reflects this decline in domestic demand. China is the third major export market that we really need to be thriving, but it also appears to be stalling. From that vantage point, a trade recession cannot be ruled out at this time," he said.
China's weak growth
According to the National Bureau of Statistics (NBS), China's official manufacturing purchasing managers' index decreased to 49.0 in July from 50.2 in June.
PMI measurements are consecutive and reflect month-to-month growth or decline. Anything above 50 suggests expansion, whereas anything below 50 indicates contraction.
China, whose GDP grew by only 0.4 percent year on year in the second quarter, is a critical export market for several Asian countries. As a result, a downturn in the world's second-largest economy will ripple effect throughout the area.
"The manufacturing sector is currently the most fragile portion of the global economy," Neumann added.
"That's where we're seeing the first symptoms of weakness, whether in the United States, in mainland China, or in Europe," he said, adding that the slowdown will have a knock-on impact on Asia's economy.
"Asia relies heavily on the global manufacturing sector, with economies such as [South] Korea, Japan, and Taiwan particularly vulnerable to global manufacturing demand. As a result, the immediate deceleration will result in weaker growth in Asia," Neumann explained.
According to the economist, the gloomy global manufacturing picture is exacerbated by the region's growing inflation.
"We also have the issue of inflation. That's going to be a difficult one... Despite the production downturn, we believe this trend will continue throughout the year, "Neumann stated.
According to him, commodity prices have begun to "cool off," which might dampen headline inflation. However, underlying core inflation remains strong, partly due to wage increases and supply chain disruptions, he said.
According to Neumann, this would most certainly damage Asia's exporters since core inflation will likely contribute to price pressures.
"Make no mistake about it: we're looking at very persistent core inflation," Neumann added. "Of course, supply chain issues in Asia aren't helpful in terms of reducing pricing pressures in the coming months."