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Weak Global and Domestic Demand Puts Pressure on Asian Manufacturers

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Published on : Apr 01, 2015

Decrease in the prices of the raw materials has lowered production costs for the manufacturers in Asia but weak global and domestic demands have forced the manufacturers to cut down their profit margins. According to purchasing-manager’s index (PMI), which measures manufacturing conditions, in countries like South Korea, Taiwan and Indonesia, factories are facing tough time. The index shows the Chinese manufacturers to be better off than their other Asian counterparts. This might be the result of the Chinese government’s efforts to help the economy through various infrastructure projects. However, the big, state owned companies are getting the help compared to the small and medium firms.  

China’s official PMI index indicated a positive turn in the manufacturing activities since December 2014. But a private reading by HSBC and research firm Markit, indicates that the manufacturing activities in smaller firms in China has fallen back in March. HSBC added that the factories were cutting down on job requirements at an alarming rate. The rise in the market has been in the news but the reality is quite different in China.

In South Korea, both export data and PMI reflected a weak economy. Exports contribute to half of the country’s growth and in March, exports dropped by 4.2% compared to that of 3.3% drop in February.

Pick up in the U.S. demand and product launches like Samsung’s Galaxy S6 smartphone will help to overcome the current situation in South Korea but these factors will take some time to show the effect in the economy.

In Indonesia, due to the slower pace in the manufacturing sector, employee headcount has reduced drastically in the four years of survey history. Indonesia’s currency rupiah has fallen to its lowest level against the dollar in more than 15 years. This has resulted in the increase of the cost of imported raw materials. 

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