Supply chain issues and Covid’s resurgence have tripped up manufacturers across the region with activity even shrinking in Vietnam, Malaysia and India while European rivals are pacing ahead
Asia is lagging behind western economies in its recovery from the pandemic, reinforcing the view that many of the region’s central banks are unlikely to withdraw their stimulus programmes anytime soon.
Data released this week showed that Asian manufacturers saw momentum weaken amid rising materials costs and the return of curbs to combat a new wave of coronavirus infections amid slow vaccine rollouts.
The slowdown around the Pacific came as European factories continued to ramp up their post-lockdown recovery in June.
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But manufacturing activity grew at a slower pace in China and Japan as raw materials rose, while activity shrank in Vietnam, Malaysia and India, where governments imposed tougher restrictions to contain fresh coronavirus outbreaks.
A shortage of shipping containers and supply chains hugely affected by the global pandemic have made it a sellers’ market for materials needed by factories. An index measuring input prices in the euro zone was at its highest since the survey began 24 years ago.
IHS Markit’s final manufacturing Purchasing Managers’ Index (PMI) nevertheless rose to a survey high of 63.4 in June from May’s 63.1, above an initial 63.1 “flash” estimate. Anything above 50 indicates growth. [EUR/PMIM]
“The June PMIs dropped back as virus outbreaks and supply chain issues created mounting headwinds for industry,” said Alex Holmes, emerging Asia economist at Capital Economics.
GROWTH SLUMP
“With neither issue likely to be resolved soon, the rapid growth in industry over the past few quarters looks unlikely to be repeated.”
China’s factory activity expanded at a softer pace in June with output growth slumping to its lowest level in 15 months, according to a private survey, in line with an official survey showing a dip in activity to a fourth-month low.
The Caixin/Markit Manufacturing PMI fell to 51.3 in June from May’s 52, marking the 14th month of expansion but coming in below analyst expectations for only a slight slowdown to 51.8.
Higher raw materials costs and a shortage of semiconductor chips also hurt export powerhouses including Japan, which saw factory activity expand at the slowest pace in four months in June.
South Korea fared better, with factory activity growing for a ninth consecutive month in June, though record input and output price rises pointed to strains on manufacturers.
TOURISM HIT
“Manufacturers were increasingly commenting that severe supply chain disruption was starting to impact activity,” said Usamah Bhatti, an economist at IHS Markit.
Once seen as a driver of global growth, Asian’s emerging economies are lagging advanced economies in recovering from the pandemic’s pain as delays in vaccine rollouts hurt domestic demand and countries reliant on tourism.
Vietnam’s PMI plunged to 44.1, marking the sharpest deterioration in business conditions while Malaysia’s PMI fell to 39.9 as renewed Covid curbs weighed on external and domestic demand. The PMI for Taiwan fell to 57.6 from 62.0.
India’s factory activity contracted for the first time in almost a year as restrictions to contain the deadly second wave of the coronavirus hit demand.
- Reporting by Reuters
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