Asia factories see momentum weaken on rising costs, new Covid curbs

 

Asia's factory activity saw momentum weaken in June as some countries struggled with rising input costs and the reintroduction of curbs to combat a new wave of coronavirus infections, surveys showed on Thursday.

Vietnam and Malaysia were particularly hard hit. Manufacturing activity shrank in those countries in June due to stricter coronavirus restrictions, clouding the outlook for a region lagging western economies in recovering from the pandemic.

"The June PMI data show clearly the impact of the latest wave of the COVID-19 pandemic on the Vietnamese manufacturing sector, with company shutdowns in areas facing restrictions leading to sharp reductions in output and new orders across the sector as a whole," said Andrew Harker, Economics Director at IHS Markit.

"While less severe than after the outbreak of the pandemic in early-2020, the reduction in manufacturing output in June was stronger than anything seen prior to COVID-19 since the survey began more than a decade ago."

China's factory activity expanded at a softer pace in June with output growth slumping to the 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 Purchasing Managers' Index (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 material costs and shortage of semiconductor chips also hurt Asia's 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.

"Manufacturers were increasingly commenting that severe supply chain disruption was starting to impact activity," said Usamah Bhatti, an economist at IHS Markit.

Vietnam's PMI plunged to 44.1 in June from 53.1 in May, marking the sharpest deterioration in business conditions for over a year and sliding below the 50-mark that separates growth from contraction.

Malaysia's PMI also fell to 39.9 in June from 51.3 in May as renewed COVID curbs weighed on external and domestic demand. The PMI for Taiwan also fell to 57.6 from 62.0.

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.

The final au Jibun Bank Japan Manufacturing PMI in June slipped to 52.4 on a seasonally adjusted basis from 53.0 in the previous month, coming in at its lowest since February.

South Korea's PMI edged up to 53.9 in June from 53.7 in May, though the sub-index for input prices jumped to a record in a sign companies were feeling the pinch from rising raw material costs. - Reuters