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Covid Curbs Asia’s Manufacturing Power as Supply Chains Struggle

Pandemic-related supply disruptions and falling consumption also hit the region’s export giants Japan, South Korea and Taiwan


A worker at a steel processing production line at a factory in Hefei, Anhui province, China. Photo: Reuters

 

Asia’s factory activity lost significant momentum in August as a resurgence in coronavirus cases disrupted supply chains across the region.

The slump raises concerns that faltering manufacturing will add to the economic woes caused by falling consumption with Southeast Asia, a low-cost manufacturing hub for many global companies, hit particularly hard.

Factory activity shrank in Vietnam, Indonesia and Malaysia after virus outbreaks and output suspensions, surveys showed on Wednesday – and in a worrying sign for the global economy, China’s factory activity also contracted in August for the first time in nearly 18 months as Covid curbs, supply bottlenecks and high raw material prices weighed on output.

 

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Export power-houses Japan, South Korea and Taiwan also saw manufacturing activity expand at a slower pace in August, a sign that chip shortages and factory shutdowns in the region could delay a sustained recovery from the pandemic-induced slump.

“Virus disruptions add to the list of headwinds for the region’s producers, including semiconductor shortages and high shipping costs,” said Alex Holmes, emerging Asia economist at Capital Economics.

The weakness in Asia contrasts with Europe, where factories are mostly expected to maintain a brisk pace of expansion as its highly vaccinated economies reopen.

The surveys highlight the pandemic’s broadening damage in Southeast Asia, where soaring infections and lockdown measures have hurt both the service and manufacturing sectors.

 

LOW-COST BASES

Delta outbreaks in the region have caused supply chain headaches for the world’s largest manufacturers, many of which rely on auto parts and semiconductors made in low-cost bases such as Thailand, Vietnam and Malaysia.

“If the strict lockdown measures continue, Southeast Asia may find it hard to remain a global production hub,” Makoto Saito, an economist at NLI Research Institute, said.

China’s Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) fell to 49.2 in August, from 50.3 in July, breaching the 50-mark that separates growth from contraction, a private sector survey showed on Wednesday.

The result was well below market expectations, underscoring the fragile nature of China’s recovery that had helped pull the global economy from the pandemic-induced doldrums.

The private survey followed official PMI released on Tuesday, which showed the index falling in August but staying above the 50-mark.

 

LOCKDOWN MEASURES

Japan’s PMI eased to 52.7 from 53.0 in July with new export orders posting their first contraction since January. South Korea’s index also fell to 51.2 in August from 53.0 in July.

In Vietnam and Malaysia, activity was hurt by lockdown measures and rising infections that forced some factories to suspend operations.

Vietnam saw factory activity shrink to 40.2 from 45.1 in July. Malaysia’s PMI stood at 43.4 in August, up from 40.1 in July but staying well below the 50-threshold.

Growth in India’s factory sector activity also slowed as persistent pandemic-related weakness weighed on demand and output, forcing firms to cut jobs again following a brief recovery in July.

 

  • Headline updated on original story

 

  • Reuters and Sean O’Meara.

 

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Sean OMeara

Sean O'Meara is an Editor at Asia Financial. He has been a newspaper man for more than 30 years, working at local, regional and national titles in the UK as a writer, sub-editor, page designer and print editor. A football, cricket and rugby fan, he has a particular interest in sports finance.

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