SINGAPORE, Jan 2 (Reuters) - Manufacturing activity in Asia
expanded in December as China's economy showed signs of revival
but export demand was uneven, pointing to further sluggish
growth for the region, business surveys suggest.
Private and official manufacturing surveys added to evidence
that China's economy picked up late in the year, while activity
in India expanded at its strongest pace in six months in
December, boosted by strong factory output and a spike in new
orders.
Similar reports on Wednesday also showed activity increased
in South Korea and Taiwan for the first time since May.
But while domestic orders showed some improvement, export
orders were decidedly mixed, pointing to continued weakness in
global demand with Europe mired in recession and fears of
tighter fiscal policy clouding recovery prospects in the United
States.
South Korean exports unexpectedly fell in December,
according to data on Tuesday, highlighting that any recovery for
export-reliant Asian economies is likely to be patchy and slow.
"Asia is gradually improving, but the region, including
China, remains largely exposed to exports and without signs of
improvement in the U.S. and Europe it will be hard for activity
to take off," said Frederic Neumann, co-head of Asian economics
at HSBC.
Later on Wednesday, similar surveys are expected to indicate
the euro zone recession likely deepened in the fourth quarter
while U.S. ISM manufacturing in December was expected to
modestly expand.
MORE CLIFFS AHEAD
A last-minute deal in Washington to avoid steep tax hikes
and spending cuts from Jan. 1 may not remove an expected drag on
the world's largest economy, Neumann added, noting that more
heated political battles over U.S. fiscal policy were likely in
coming months.
"We have a triple 'fiscal cliff' coming up in March,"
Neumann said, referring to talks over the U.S. debt ceiling and
other upcoming budget battles.
"We will probably only get clarity on the outlook for the
year by the second quarter," he said, adding the Chinese New
Year holidays early in the year also tended to distort trade and
production patterns.
The U.S. economy will remain sluggish in 2013, underscoring
the very fragile world economic outlook, while chances of a
recovery in the euro zone have faded further, Reuters polls
show.
CHINA
For Asia, much hinges on the pace and quality of the
recovery in China as a new generation of leaders prepares to
take charge.
The official China manufacturing purchasing managers' index
(PMI) released on Tuesday held steady in December at 50.6,
matching November's seven-month high, though growth in new
orders was unchanged and the pace of output softened marginally.
A similar survey by HSBC released a day earlier, which
focuses more on smaller and mid-sized firms, suggested activity
was at its strongest since May 2011.
Together the surveys support a growing consensus that
economic activity in China picked up during October to December
-- after GDP growth had slowed for seven consecutive quarters to
7.4 percent in the third quarter -- partially offsetting
persistent weakness in Europe and Japan.
"Both surveys are back above 50 (indicating expansion),
which is reassuring but not pointing to a return to the kind of
heady growth that China has seen before," Neumann said.
"We really need Chinese consumers to step up."
Most analysts and academics agree China needs to transform
its growth model to allow consumption, not exports and
investment, to drive activity. But there is no clear agreement
on how or when China can pursue such changes.
Soon-to-be-retired President Hu Jintao promised in a new
year address that reform of China's economic growth model would
be a crucial theme this year, without giving further details.
MIXED SIGNALS
In India, Asia's third-largest economy, the HSBC Markit
Manufacturing PMI, which gauges the business activity of the
country's factories but not its utilities, jumped to 54.7 in
December from 53.7 in November, its biggest monthly rise since
January 2012.
India's central bank is widely expected to cut interest
rates as early as this month if inflation continues to cool,
shifting its focus towards boosting the economy.
A similar survey on South Korea's manufacturing sector edged
up to 50.08 in December from 48.16 in November. It was the first
time since May that the index stood above the 50-point mark that
separates growth from contraction.
Sub-indexes for overall output and new orders were
marginally above 50, driven by new product launches that met
domestic demand. But the new export orders sub-index fell to
48.86 in December, marking the seventh month of contraction as
overseas consumer sentiment wilted.
Activity in Southeast Asia's largest economy, Indonesia,
also expanded but at a slower rate, as growth of new export
orders eased from a month earlier.
Business sentiment among Asia's top companies improved
slightly in the fourth quarter, reversing two consecutive
quarters of declines, while global economic uncertainty remained
the biggest concern for the region's firms, a recent Thomson
Reuters/INSEAD survey showed.