Asia’s Factories Are Flashing Amber as Trade War Starts to Bite

(Bloomberg) -- Manufacturing gauges for some of Asia's most export-driven economies slipped into negative territory in October, highlighting the spillover effect from the U.S.-China trade war.

The contractions follow evidence of a broad-based slowdown in China that has prompted the government to promise new measures to stoke growth.

In the latest sign that trade war pain is spreading, purchasing managers' indexes for Taiwan, Thailand and Malaysia all fell into contractionary territory during October.

Taiwan's PMI fell to 48.7 from 50.8 in September, the lowest reading and first contraction since May 2016. Malaysia's index declined to 49.2 from 51.5 while Thailand dropped to 48.9 from 50, its lowest reading since Nov. 2016. Readings above 50 signal expansion while those below 50 signal a contraction.

"The slowdown in China as a result of the trade war is affecting smaller open economies in Asia," Ben Emons, chief economist and head of credit portfolio management at Intellectus Partners, wrote in an email.

South Korea's dipped to 51 from 51.3 and Indonesia declined to 50.5 from 50.7.

There were modest gains elsewhere: China's Caixin Manufacturing PMI reading nudged higher to 50.1 from 50, moving in the opposite direction from the official manufacturing report released Wednesday. Vietnam climbed to 53.9 from 51.5 and Japan rose to 52.9 from 52.5 a month earlier.

Asia is especially vulnerable to trade tensions given its key role in China's manufacturing supply chain. The region accounts for around 60 percent of global growth.

"Downside risks to the global economic outlook for 2019 are increasing," said Rajiv Biswas, Asia Pacific chief economist at IHS Markit in Singapore.

To contact the reporter on this story: Enda Curran in Hong Kong at ecurran8@bloomberg.net

To contact the editors responsible for this story: Malcolm Scott at mscott23@bloomberg.net, James Mayger

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