Asia’s factories took a tumble last month under the weight of the rapidly spreading COVID-19 outbreak, with a severe plunge in activity in China driving down output across the region.
China’s Caixin Media and IHS Markit purchasing managers’ index (PMI) dropped to 40.3, its lowest reading since the series began in 2004, figures released yesterday showed.
South Korea’s PMI, a critical bellwether of global demand, dropped to a four-month low of 48.7 from 49.8 in January, while the Jibun Bank Japan index declined to 47.8, the lowest reading since May 2016.
Taiwan dropped below 50, the dividing line between expansion and contraction, while Thailand and Malaysia stayed in that territory.
Vietnam’s PMI fell to a more than six-year low of 49. India’s Markit PMI cooled from January’s level, which was the highest in almost eight years.
The factory sentiment data show how the virus is rippling through the region, disrupting supply chains and depressing demand. Travel restrictions are widespread, schools and businesses are shuttered in parts of the region and governments are scrambling to provide stimulus to shore up their economies.
China’s official PMI last month plunged to a record-low 35.7 from 50 at the start of the year, data released on Saturday showed.
The big decline signals a worse-than-expected first-quarter contraction, with Nomura Holdings Inc economists led by Lu Ting (陸挺) projecting the economy shrank 2.5 percent in the first three months of the year from the previous period.
Australia and New Zealand Banking Group Ltd and Barclays PLC also cut their forecasts and now expect full-year growth to be below 5 percent.
For China, “evidence of factories re-starting — albeit very unevenly and tentatively — means that the recovery will be somewhat short of a resounding V-shaped rebound,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd in Singapore. “The bigger picture of a tepid recovery from brutal seizures remains.”
Global markets have been roiled by virus fears, with equities and bond yields sliding early yesterday, before rebounding amid signs of support from central banks.
The US Federal Reserve on Friday signaled that it is open to easing policy, while Bank of Japan Governor Haruhiko Kuroda yesterday issued an emergency statement to calm market jitters.
Indonesia was a lone bright spot in the regional data, seeing its PMI gauge rise to 51.9, its first reading in expansion since June.
Southeast Asia’s biggest economy yesterday confirmed its first two coronavirus cases, amid concern that testing has not been vigorous enough.
“We expect China’s PMIs to see some improvement in the coming months. Yet the continued disruptions in the supply chain and weakness of the Chinese economy could put downward pressures on the regional economies for some time. Policy support is expected across in China and the rest of Asia,” Bloomberg Economics chief Asia economist Chang Shu (舒暢) said.
China’s economy is gradually returning to work with activity likely running at 60 to 70 percent capacity last week, a Bloomberg Economics report said, up from about 50 percent two weeks ago.
South Korea has been particularly hard-hit over the past two weeks, as virus cases surged above 4,200.
The Bank of Korea refrained from cutting interest rates when it met last week, opting instead to extend inexpensive loans to small businesses and leaving it for the government to take broader action.
South Korea’s manufacturers and exporters are likely to remain under pressure, said Joe Hayes, an economist at IHS Markit.
“Even if demand does recover, day-to-day operations are likely to suffer as firms seek alternative suppliers or operate below capacity until normality across supply chains is restored,” he said.
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