Tue, Jul 04, 2023 page10

• Asia’s output drops on weak demand

  MAJOR INFLUENCE: Factory activity is lacking momentum because the prospects of a robust Chinese post-COVID-19 recovery have diminished, an economist said

  • Reuters, TOKYO
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  Asia’s factory activity slumped last month, as sluggish demand in China and advanced nations clouded the outlook for the region’s exporters, business surveys showed yesterday.

  While manufacturing activity expanded marginally in China, it contracted in powerhouses Japan and South Korea, as Asia’s fragile economic recovery struggled to maintain momentum.

  The surveys underscore the toll China’s weaker-than-expected rebound from COVID-19 lockdowns is inflicting on Asia, where manufacturers are also bracing for the fallout from aggressive US and European interest rate hikes.

  

  An employee disassembles a used lithium-ion electric vehicle battery at the 4R Energy Corp factory in Namie, Japan, on April 27. Business surveys have showed that Asia’s factory activity slumped last month.

  Photo: Bloomberg

  “The worst may have passed for Asian factories, but activity lacks momentum because of diminishing prospects for a strong recovery in China’s economy,” Dai-ichi Life Research Institute chief emerging market economist Toru Nishihama said.

  “China is dragging its feet in delivering stimulus. The US economy will likely feel the pain from big rate hikes. These factors all make Asian manufacturers gloomy about the outlook,” Nishihama said.

  China’s Caixin/S&P Global Manufacturing Purchasing Managers’ Index (PMI) eased to 50.5 last month from 50.9 in May, the private survey showed, staying above the 50-point index mark that separates growth from contraction.

  The figure, combined with Friday’s official survey that showed factory activity extending declines, adds to evidence that the world’s No. 2 economy lost steam in the second quarter.

  The effects are being felt in Japan where the final au Jibun Bank PMI fell to 49.8 last month, returning to a contraction after expanding in May for the first time in seven months.

  New orders from overseas customers decreased last month at the fastest rate in four months, reflecting feeble demand from China, the Japan PMI survey showed.

  South Korea’s PMI fell to 47.8 last month, from 48.4 in May, extending its downturn to a record 12th consecutive month on weak demand in Asia and Europe.

  Factory activity also contracted in Taiwan, Vietnam and Malaysia, the PMI surveys showed.

  There were bright patches among the indicators released, with India’s manufacturing industry bucking the trend and expanding at a brisk pace last month, albeit slightly slower than in May, supported by robust demand.

  The Bank of Japan’s closely watched Tankan survey also showed Japanese business sentiment improving in the second quarter as raw material costs peaked and the removal of COVID-19 curbs lifted consumption.

  The fate of Asia’s economy, including China’s, would have a huge effect on the rest of the world, with aggressive monetary tightening also expected to weigh on US and European growth.

  In forecasts released in May, the IMF said it expects Asia’s economy to expand 4.6 percent this year after a 3.8 percent gain last year, contributing to about 70 percent of global growth.

  However, it cut next year’s Asian growth forecast to 4.4 percent and warned of risks to the outlook such as stickier-than-expected inflation and slowing global demand.
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