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The tale was similar from Singapore to South Korea to Indonesia as
manufacturers struggled with weak demand, both at home and abroad.
China's official Purchasing Managers' Index (PMI) slipped to 50.1 in
December from November's 50.3, its lowest level of the year and just
above the 50-point level that is supposed to separate growth from
contraction.
There was better news from China's services sector, which accounts
for close to half of the economy, where the PMI edged up to 54.1 in
December from November's 53.9.
Yet many analysts suspect economic growth for all of 2014 will
undershoot the government's 7.5 percent target, marking the weakest
expansion in 24 years.
With factories able to make more than consumers wanted to buy, the
pressure was intense to cut prices.
"The price measures show very strong disinflationary forces," said
analysts at Nomura.
"With no inflation pressure, we expect more policy easing in the
first quarter, including a 50 basis-point cut in the bank reserve
requirement ratio, to shore up domestic demand."
INFLATION DEFLATES
Disinflation was a feature across much of the region.
India's PMI showed input prices slumped to a near six-year low, even
as overall manufacturing activity picked up to its fastest in two
years.
The HSBC PMI, compiled by Markit, rose to 54.5 in December from
53.3, the 14th straight month above the 50-mark that separates
growth from contraction.
Yet India's annual inflation rate has slowed to only 4.38 percent,
the lowest since the government started releasing the data in 2012
and potentially a green light for easing by the Reserve Bank of
India (RBI).
"With the disinflationary trend gaining ground, the RBI is expected
to find space for some rate cuts in 2015," said Pranjul Bhandari,
chief India economist at HSBC.
In South Korea, consumer prices grew at the slowest clip in more
than 15 years in December, opening the door for further rate cuts
there.
Its version of the PMI contracted slightly but did show some
improvement in December to stand at 49.9, from 49.0 in November.
Indonesia was not even that fortunate as its PMI slipped to 47.6 in
December, the lowest since the survey began in April 2011 and a
third consecutive month of contraction.
Singapore also disappointed as economic growth slowed more than
expected in the fourth quarter and the manufacturing sector
contracted in the face of erratic global demand, which could
continue to weigh on Asia's trade-reliant economies well into the
new year.
The city-state's gross domestic product expanded by an annualized
1.6 percent, well short of the 3.0 percent analysts expected and
mainly due to a reversal in manufacturing.
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"The external demand story remains very lackluster at this
juncture," said Selena Ling, an economist at Oversea-Chinese Banking
Corp, adding that Japan, China and Europe were all slowing down.
"Unlike 2014, when we started on a strong note for the first half
and after that the momentum tapered off, we could be starting 2015
on a relatively soft note, especially as people are looking forward
to the Fed to normalize policy," she added.
FED, ECB ON DIVERGING PATHS
Asian exporters will get some relief as the U.S. economy shifts into
higher gear, though they did not benefit as much from the American
recovery in 2014 as they had in the past.
The U.S. Federal Reserve has indicated it will start raising rates
from zero later this year as long as the economy continues to
improve and unemployment falls further.
The U.S. Institute for Supply Management's measure of manufacturing
is due later on Friday and is expected to show a still strong
reading around 57.6 for December.
In contrast, the December PMIs from the euro zone are seen staying
subdued, which will only add to pressure for more aggressive action
from the European Central Bank.
In an interview with German financial daily Handelsblatt published
on Friday, ECB President Mario Draghi acknowledged the risk that
inflation would stay too low for too long.
"We are in technical preparations to adjust the size, speed and
compositions of our measures early 2015, should it become necessary
to react to a too long period of low inflation," he said. "There is
unanimity within the Governing Council on this."
The ECB council meets on Jan. 22 and markets are wagering heavily it
will finally decide to start buying sovereign debt, a major reason
the euro hit 29-month lows on Friday.
(Editing by Kim Coghill)
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