Asia Manufacturing Powers Ahead as Virus Weighs on Outlook
Asia’s manufacturing activity continued to advance in May, though at a slightly slower pace, despite flare-ups of Covid-19 around the region that could force some plants to close and weigh on sentiment.
Taiwan’s IHS Markit May manufacturing purchasing managers’ index declined to 62 from April’s 62.4, remaining well above the 50 level that signals expansion. New orders rose.
South Korea’s IHS Markit PMI index for May dipped to 53.7 from 54.6, while new orders fell to their lowest level since January. Japan’s au Jibun Bank and IHS Markit PMI fell to 53 from 53.6, while new orders recorded their weakest reading since February.
The generally strong readings come as the region grapples with virus infections that are forcing governments to reimpose restrictions in key corporate and consumer hubs. Vaccination rates that lag the U.S. and Europe also could weigh on Asia’s economies.
Associated mobility restrictions have interrupted business activity and raised risks that economic rebounds could be derailed, including in pandemic-ravaged India. Malaysia has started a two-week national lockdown to curb infections. Several factories in Thailand have closed temporarily to stem outbreaks, while authorities in Vietnam ordered companies to let workers sleep in plants to avoid disrupting production.
Even Taiwan, which had been praised for its management of the virus, reported a record tally of Covid deaths last week that could lead authorities to extend soft lockdown measures. Thailand is embarking on a belated vaccination rollout after Covid deaths hit a record in Bangkok, with the government planning further stimulus as the tourism-dependent economy struggles to spur demand.
The data come as a gauge of China’s manufacturing industry was little changed in May. Soaring input prices are weighing on smaller factories, suggesting that recovery momentum might have peaked for now.
China’s official manufacturing purchasing managers’ index slowed slightly to 51 in May, the National Bureau of Statistics said Monday. The non-manufacturing gauge, which measures activity in the construction and services sectors, climbed to 55.2.
That’s a potential worry for the rest of Asia, given China’s role as a source of demand for input components and materials. An outbreak of virus infections in Guangzhou has forced authorities to impose fresh restrictions on movement.
Still, the Caixin Media and IHS Markit manufacturing purchasing managers’ index for China rose to 52 from 51.9, its highest reading since December, with new orders increasing.
Other data Tuesday showed South Korea’s May exports surged, with shipments increasing 45.6% from a year earlier. Exports to China rose 22.7% and total semiconductor shipments expanded by 24.5%.
Bloomberg’s Trade Tracker continues to show booming global goods trade, with nearly all of the 10 indicators in above-average territory or better. Still-high demand for electronics and shipping backlogs as some of the world’s biggest importers recover are keeping factories busy, while shortages of materials fuel debate about how long inflationary pressures might last.
Supply-side bottlenecks in Asia should prove transitory, but in the near term there’s a risk that inflationary pressures will build up, according to Frederic Neumann, head of Asian economics at HSBC Holdings Plc.
“As the West reopens, much of Asia is still tussling with the virus,” Neumann wrote in a note. “That potentially sets us up with intensifying supply bottlenecks in the coming months. Across the region, this could pose headwinds to growth while simultaneously raising inflation everywhere.”
India’s PMI fell to 50.8 from 55.5 in April, mirroring activity curbs to stem the pandemic. In Southeast Asia, Malaysia’s PMI fell to 51.3 from 53.9 and the Philippines PMI rose to 49.9 from 49. Indonesia’s PMI will be reported Wednesday due to a holiday.
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