Asian factory activity slumps on China’s COVID curbs and US slowdown

A worker checks machinery at a factory in Higashiosaka, Japan, June 23, 2022. REUTERS/Sakura Murakami

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  • Chinese factory activity falls for the first time in 3 months
  • Business growth in Japan slows
  • South Korea’s activity declines at fastest pace in 2 years
  • Taiwan business slumps, pressure on input costs eases

TOKYO, Sept 1 (Reuters) – Asian factory activity fell in August as zero COVID restrictions and cost pressures in China continued to hurt businesses, surveys showed on Thursday, darkening the outlook for the fragile economic recovery in the region.

Manufacturing activity was weak in countries ranging from Japan, China, South Korea to Taiwan, a sign that weak demand was adding to the headaches of companies already suffering from lingering supply constraints.

The U.S. Federal Reserve’s determination to pursue aggressive interest rate hikes is also dampening corporate sentiment by stoking recession fears in one of Asia’s biggest export markets, analysts said.

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“The fight against the pandemic in China and geopolitical tensions with the United States continue to disrupt supply chains. Rising inflation is also hurting domestic demand across Asia,” said Toru Nishihama, chief economist at the Dai-ichi Life Research Institute in Tokyo.

“Fears of a recession in the United States don’t help either. The American and Chinese economies are the engines of global growth, so when both falter, it creates problems for businesses.”

China’s private Caixin/Markit manufacturing purchasing managers’ index (PMI) contracted for the first time in three months in August, data showed on Thursday, as weak demand, power shortages and new outbreaks of COVID-19 are disrupting production. Read more

The surprisingly weak reading echoes China’s official PMI released on Wednesday, which was also below the 50-point mark that separates growth from contraction on a monthly basis.

The exporting powers were equally weak. Japan’s factory activity grew at its slowest pace in nearly a year in August, while South Korea’s shrank at the fastest pace in two years, the two countries’ PMIs showed. .

Manufacturing activity also deteriorated sharply in Taiwan, with production and new orders falling at the fastest rate since the first wave of the pandemic in May 2020.

“The sharp deterioration in demand has also meant that companies have reduced purchasing activity and inventories as more companies expect production levels to drop further in the year ahead,” Annabel Fiddes, associate director of economics at S&P Global, said of Taiwan’s production outlook.

The final index at the Jibun Bank Japan Manufacturing Purchasing Managers’ Index (PMI) fell to 51.5 in August from 52.1 the previous month, marking the weakest growth rate since September 2021. read more

South Korea’s PMI index fell to 47.6 in August from 49.8 in July, remaining below the 50 threshold for a second month and reaching the lowest since July 2020. read more

Taiwan’s PMI rose to 42.7 in August from 44.6 in July.

However, weaker demand has the side effect of reducing price pressures. South Korean manufacturers saw input prices rise in August at the slowest pace in 19 months.

Average input costs faced by Taiwanese goods producers fell for the first time since May 2020 as prices for some raw materials such as steel and oil began to decline.

Southeast Asia remained a bright spot in the region with accelerating growth in manufacturing activity in Indonesia, the Philippines and Thailand, while Malaysia’s growth slowed slightly, according to PMIs.

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Reporting by Leika Kihara; Editing by Sam Holmes

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