Asia’s factory activity weakens on global slowdown, cost pressures

By Leika Kihara

TOKYO (Reuters) – Asia’s factory output mostly weakened in September as slowing demand in China and advanced economies added to the pain from persistent cost pressures, surveys showed on Monday, clouding the region’s economic recovery prospects.

Manufacturing activity shrank in Taiwan and Malaysia, and grew at a slower pace in September compared with August in Japan, India and Vietnam, as rising raw material costs and the darkening global outlook weighed on corporate sentiment.

The surveys came after China’s factory and services activity data on Friday pointed to further cooling in the world’s second-largest economy as strict COVID lockdowns disrupted production and dampened sales.

“We’re seeing economic conditions deteriorate in China, the United States and Europe. That’s definitely weighing on Asian manufacturing activity,” said Toru Nishihama, chief economist at Dai-ichi Life Research Institute in Tokyo.

“While supply disruptions may have run their course, Asia is now suffering from slumping global demand.”

The data clouds the outlook for Asia’s recovery from the COVID-19 pandemic, and could add to concerns of a global slowdown as major central banks embark on the most aggressive round of rate rises in decades to tame soaring inflation.

The au Jibun Bank Japan Manufacturing Purchasing Managers’ Index (PMI) slumped to 50.8 in September from 51.5 in the prior month, marking the weakest growth rate since January last year.

New orders shrank at the fastest rate in two years, while output posted its sharpest decline in a year due to weakening demand from China and other trading partners, Japan’s PMI survey showed.

“Weakness in the yen is doing little to bolster export demand either and instead is pushing imported inflation up drastically and drove domestic price pressures up even further,” said Joe Hayes, senior economist at S&P Global Market Intelligence.

Taiwan’s PMI hit 42.2 in September, down from 42.7 in August and staying below the 50 mark that separates growth from contraction on a monthly basis.

The global economic slowdown is clouding the outlook even for high-growth industries. Top electric car maker Tesla Inc on Sunday announced lower-than-expected electric vehicle deliveries in the third quarter.

While the company said logistical challenges overshadowed its record deliveries, some analysts voiced concern about demand for high-ticket items due to slowing global growth.

Vietnam’s PMI fell to 52.5 from 52.7 in August, while that of Malaysia slid to 49.1 from 50.3, the surveys showed.

India’s factory growth dipped to a three-month low in September due to a moderation in demand and output, despite easing inflationary pressures and strong business confidence.

Soaring inflation has forced U.S. and European central banks to embark on interest rate hikes, stoking fears of a sharp downturn in global demand that had underpinned Asian exports.

China’s slowdown has also clouded Asia’s economic recovery. With few signs Beijing will significantly ease zero-COVID soon, many analysts expect China’s economy to grow by just 3% this year, which would be the slowest since 1976, excluding the 2.2% expansion during the initial COVID hit in 2020.

Data showed on Friday China’s official PMI rose to 50.1 in September from 49.4 in August. But separate data showed China’s Caixin/Markit manufacturing PMI fell more than expected to 48.1 in September from 49.5 in August.

(Reporting by Leika Kihara; Editing by Ana Nicolaci da Costa)