China’s COVID curbs pressure Asian factory output | Business and Economy News

Asia’s factory activity slowed in May as China’s heavy-handed coronavirus curbs continued to disrupt supply chains and dampen demand, adding to woes for some of the region’s economies that are already under strain from surging raw material costs.

Manufacturers slowed activity last month in countries ranging from Japan to Taiwan and Malaysia, business surveys showed on Wednesday, a sign of the challenge policymakers face in combatting inflation with tighter monetary policy – without crippling growth.

Exporters across trade-heavy Asia are juggling an increasingly complex set of risks, as China’s COVID-19 lockdowns stifle activity, supply issues emanate from the continuing conflict in Ukraine and demand-side worries emerge as accelerating inflation dents consumption in the world’s biggest economies.

China’s Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) stood at 48.1 in May, improving slightly from 46.0 the previous month but staying below the 50-point threshold that separates contraction from expansion, a private survey showed.

The outcome was in line with Tuesday’s official data that showed China’s factory activity fell at a slower pace in May. While COVID curbs are being rolled back in some cities, they continue to weigh heavily on confidence and demand.

“Disruptions to supply chains and goods distribution may gradually ease as Shanghai’s lockdown ends. But we’re not out of the woods as China hasn’t abandoned its zero-COVID policy altogether,” said Toru Nishihama, chief economist at Dai-ichi Life Research Institute in Tokyo.

“Rising inflation is forcing some Asian central banks to tighten monetary policy. There’s also the risk of market volatility from US interest rate hikes. Given such layers of risks, Asia’s economy may remain weak for most of this year.”

China spillovers

Lockdowns in China have snarled regional and global logistics and supply chains, with both Japan and South Korea reporting sharp declines in output.

Japan’s manufacturing activity grew at the weakest pace in three months in May and manufacturers reported a renewed rise in input costs, the PMI survey showed, as the fallout from China’s lockdowns and the Ukraine conflict pressured the economy.

The final au Jibun Bank Japan PMI fell to a seasonally adjusted 53.3 in May from the previous month’s 53.5, marking the slowest pace since February.

“Both output and new orders rose at softer rates, with the latter rising at the weakest pace for eight months amid sustained supply chain disruption and raw material price hikes,” said Usamah Bhatti, an economist at S&P Global Market Intelligence.

“Disruptions were exacerbated by renewed lockdown restrictions across China, and contributed to a further sharp lengthening of suppliers’ delivery times.”

Factory activity in the Philippines also slowed to 54.1 in May from 54.3 in April, while that for Malaysia fell to 50.1 from 51.6 in April, PMI surveys showed. Taiwan’s manufacturing activity stood at 50.0 in May, down from 51.7 in April.

In a glimmer of hope, South Korea’s exports grew at a faster pace in May than a month earlier, data showed on Wednesday, as a rise in shipments to Europe and the United States more than offset the fallout from China.

South Korea’s monthly trade data, the first to be released among major exporting economies, is considered a bellwether for global trade.

India’s factory activity expanded at a better-than-expected pace in May, with demand resilient despite persistently high inflation.