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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.

Manufacturing activity grew at a slower pace in China and Japan amid rising raw material prices, while activity shrank in Vietnam, Malaysia and India, where governments imposed tougher restrictions to contain fresh coronavirus outbreaks.

The data shows the region is lagging behind western economies in recovering from the pandemic doldrums, reinforcing the view that many regional central banks are unlikely to withdraw pandemic-era stimulus any time soon.

“The June PMIs dropped back as virus outbreaks and supply chains issues created mounting headwinds for industry,” said Alex Holmes, emerging Asia economist at Capital Economics.

“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 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 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.


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 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 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.

India’s factory activity also contracted for the first time in almost a year in June as restrictions to contain the deadly second wave of the coronavirus hit demand.

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.
Source: Reuters (Reporting by Leika Kihara; Edtiing by Ana Nicolaci da Costa)

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