Asia’s factory pain showed signs of easing last month, as a rebound in China’s activity offered some hope the region might have passed the worst of the devastation caused by the COVID-19 pandemic.
However, sluggish global demand and fears of a second wave of infections would tame any optimism on the outlook and keep pressure on policymakers to support their ailing economies.
A series of business surveys released yesterday showed broad improvements in manufacturing across Asia last month from the depths hit in April and May.
Activity in some economies swung to growth, while declines in other places slowed.
In China, factory activity grew at a faster clip last month after the world’s second-largest economy lifted lockdown measures, the Caixin/Markit purchasing managers’ index (PMI) showed.
Manufacturing activity also expanded in Vietnam and Malaysia, pointing to a slow, but steady recovery ahead.
India’s manufacturing activity contracted for a third straight month, but at a much slower pace, as both output and new orders shrank at softer rates.
Similarly, export powerhouses Japan and South Korea continued to see manufacturing activity decline, albeit at a softer pace.
Japan’s PMI rose to a seasonally adjusted 40.1 last month, while South Korea’s PMI ticked up to 43.4 — both remaining far below the rise-or-fall threshold of 50.
“The chance of a V-shape recovery in the manufacturing sector appears slim at this stage,” said Joe Hayes, economist at IHS Markit, which compiles the survey.
“We’re still awaiting signs of meaningful improvement in Japan’s manufacturing sector, with the PMI for June failing to stage a substantial recovery,” Hayes added.
A Bank of Japan (BOJ) survey released yesterday showed big manufacturers’ confidence sinking to levels last seen during the 2009 global financial crisis, reinforcing expectations the country was sinking deeper into recession.
The headline measure for the “tankan,” tracking sentiment among large manufacturers, fell to minus-34 for April-June, the lowest since 2009, from minus-8 the previous quarter, the BOJ said.
“If demand doesn’t rebound fast enough, companies will have to shed jobs,” Mitsubishi UFJ Research and Consulting senior economist Shinichiro Kobayashi said. “That will delay Japan’s economic recovery, which could end up in an L-shape.”
China’s Caixin/Markit PMI rose to 51.2 last month from 50.7 in May, marking the highest reading since December last year.
That followed a similarly upbeat reading from the official PMI released on Tuesday.
Vietnam and Malaysia also saw their PMIs crawl back above the 50-mark separating growth from contraction, a welcome sign for policymakers struggling to combat the pandemic’s fallout.
“The host of PMI data release this morning offers some reassuring signs that the outlook for the crucial manufacturing sector continues to be on the mend,” OCBC Bank Ltd (華僑銀行) economist Wellian Wiranto said.
However, analysts expect any recovery in the region to be slow.
While Chinese export orders shrank at a slower pace, its employment contraction worsened, the PMI showed, underscoring the fragile recovery.
“Overall manufacturing demand recovered at a fast clip, but overseas demand remained a drag,” Caixin Insight Group (財新智庫) senior economist Wang Zhe (王喆) said.
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