Asia factories struggle for momentum amid patchy recovery

TOKYO – Factories in Asia’s largest economies stepped up a gear in May as supply chain problems eased, business surveys showed on Thursday, but sluggish global demand remained a major challenge for many of the region’s big exporters.

Purchasing managers’ indexes (PMIs) for China and Japan showed swings in factory activity to growth in the month, in contrast to weak indicators from South Korea, Vietnam and Taiwan where declines continued.

India’s factory activity expanded at the quickest pace since October 2020, a sign that strong demand and output were supporting Asia’s third-largest economy.

The patchy set of PMIs pointed to an uneven recovery from the pandemic, particularly in China, the world’s second-largest economy, and clouded the outlook for growth in the region, but still provided some cause for optimism.

“The PMI surveys suggest that China’s economic recovery was still ongoing in May, albeit at a slower pace. Waning fiscal support weighed on construction activity,” said Mr Julian Evans-Pritchard, an analyst at Capital Economics.

“But manufacturing output ticked up and the service sector is still seeing decent gains, suggesting that second-quarter gross domestic product growth may not be as bad as many fear.”

China’s Caixin/S&P Global manufacturing PMI rose to 50.9 in May from 49.5 in April, above the 50-point index mark that separates growth from contraction.

The reading surpassed expectations of 49.5 in a Reuters poll, a stark contrast to deeper contraction activity seen in the official PMI released on Wednesday.

“The current economic growth lacks internal drive and market entities lack sufficient confidence, highlighting the importance of expanding and restoring demand,” said Caixin Insight Group senior economist Wang Zhe.

But China’s business confidence for the coming 12 months fell to a seven-month low amid concerns over global economic prospects, the Caixin survey showed.

Japan’s final au Jibun Bank PMI rose to 50.6 in May, its first reading above the 50 threshold since October, as the economy’s delayed reopening from pandemic curbs lifted demand.

But separate data released on Wednesday showed that Japanese factory output unexpectedly fell in April. While a survey of manufacturers forecast a 1.9 per cent increase in May, a government official said weak overseas demand heightened the risk of a downward adjustment in their plans.

Elsewhere in Asia, South Korea’s PMI stood at 48.4 in May, slightly up from 48.1 in April but slumping into its longest spell of contractionary readings in 14 years as slowing global demand hit output and orders.

Vietnam, Malaysia and Taiwan also saw factory activity shrink in May, while the Philippines had expansion, the surveys showed.

Asia’s economy is heavily reliant on the strength of China’s recovery, which has been uneven, with services spending outperforming activity in export-oriented sectors.

In forecasts released in May, the International Monetary Fund said it expected Asia’s economy to expand 4.6 per cent in 2023 after a 3.8 per cent gain in 2022, contributing around 70 per cent of global growth.

But it cut 2024’s Asian growth forecast to 4.4 per cent and warned of risks to the outlook, such as stickier-than-expected inflation and slowing global demand, as well as the impact of United States and European banking sector stress.

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