Asia’s factories last month stepped up production as a solid recovery in global demand helped manufacturers move past the setbacks of the COVID-19 pandemic, although rising costs are creating new challenges for businesses.
A series of upbeat factory surveys released yesterday reinforces market optimism that vaccine rollouts, as well as strong growth in global powerhouses such as the US and China, would help economies emerge from their sharp downturns of last year.
Factory activity last month in Japan and South Korea expanded thanks to solid demand at home and abroad, purchasing manager indices (PMI) showed, offering relief to policymakers facing pressure to accelerate a patchy recovery.
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“South Korean manufacturers continued to signal strong optimism as the rollout of COVID-19 vaccinations began and demand for new products accelerated,” IHS Markit economist Usamah Bhatti said.
China’s factory activity expanded at the slowest pace in almost a year, although underlying economic conditions remained positive.
The Caixin/Markit Manufacturing PMI, which focuses on smaller firms, last month dropped to 50.6 from February’s 50.9, missing market expectations.
The private-sector survey came after the official manufacturing PMI on Wednesday, which showed Chinese factories cranking up production after a brief lull during the Lunar New Year holiday.
Activity in big, export-reliant economies stayed brisk.
The au Jibun Bank Japan PMI last month rose to a seasonally adjusted 52.7 from the previous month’s 51.4 reading, marking the fastest expansion since October 2018.
South Korea’s PMI stood at 55.3, with activity expanding for a sixth straight month.
Manufacturing also accelerated in Taiwan, Vietnam and Indonesia, the surveys showed.
Malaysian activity continued to decline, but at a slower pace.
However, there were some signs that rising prices were straining firms, clouding the outlook for Asian economies.
Although supply chain disruption related to previous COVID-19 outbreaks eased, China’s Caixin survey showed that factories reporting a sharp increase in input costs.
“Input prices continue to outpace output prices, suggesting there may be some risk to profit margins,” HSBC Holdings PLC economist Erin Xin said. “Should there be significant compression in profit margins, this could dampen firms’ capex spending in the coming quarters.”
Some analysts also warned that lockdowns in Europe and supply constraints, such as chip shortages that are disrupting automobile production, could weigh on factory activity in countries like Taiwan and South Korea.
“All the uncertainty really rests with the economies they’re exporting to,” ING Groep NV chief Asia Pacific economist Rob Carnell said. “There’s certainly a little bit of downside risk.”
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