Daiwa: Asia Economy ISM and global PMIs signal modest double-digit growth

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Asia Economy

ISM and global PMIs signal modest double-digit growth for Asian exports in 2011 


Summary
• ISM new orders for October-November were much higher than for Jul-Sep 2010,
suggesting that Asian exports to the US will rise by 10-13% YoY for 2Q11 (after
<10% growth for 1Q11). Stronger global new orders affirm a stronger 2Q11 too.



Fundamentals
• ISM manufacturing new orders, which lead US imports from Asia by six
months, moderated slightly to 56.6 for November (from 58.9 for October),
suggesting that Asian exports to the US will expand by 10-12% YoY for May
2011, marginally slower than the pace indicated for April 2011. The November
reading was substantially stronger than those for Jul-Sep 2010, so the 1Q11 lull
in export growth (to about 8% YoY in early 2011) should prove short-lived.
The headline purchasing managers’ index (PMI, the composite of the ISM
readings for new orders, production, employment, etc) also eased slightly to
56.6 for November (from 56.9 for October), but the PMI readings for OctoberNovember are consistent with nearly 5% annualised real GDP growth –
suggesting a clear acceleration in the US economy in 4Q10.
• The OECD composite leading indicator (CLI) is also a good six-month leading
indicator of overall Asian export growth. As the chart (right) shows, the OECD
CLI has been decelerating over the past half-year (from its fastest pace of
expansion in 20 years over the previous half-year). The actual level (rather than
the YoY growth) of the OECD CLI has flattened in the past couple of months
(after edging slightly lower between  June and August from the May peak),
suggesting a levelling-off in the moderation of the leading indicators.
November PMIs around the world (China, India, Korea, Germany, the UK)
were all at multi-month highs and the global PMI (and new orders) reached a
four-month high, suggesting that the global manufacturing sector is likely to
sustain a reasonable expansion in 2Q11, after a growth-trough in 1Q11. We
retain our view that overall export growth for Asia will be 10-15% YoY for
2011, aided by the strength of intra-EM (emerging market) demand. If leading
indicators of US and OECD demand sustain the past two months’ strength, we
believe overall export growth for Asia would be closer to 15% YoY next year.