Asia June industry conditions improve but pandemic can stifle recovery

SINGAPORE (ICIS)–The manufacturing downturn in most of Asia eased in June as lifting of pandemic-induced restrictions allowed more factories to resume operations, but sluggish demand amid rising global coronavirus infections will continue to weigh on recovery.

“The near-term outlook for the region is bolstered by economies reopening and normalising Chinese activity. But we caution against too much optimism,” UK-based Oxford Economics said in a research note.

“Inability to contain the virus in parts of the world and weak demand in many advanced economies pose significant challenges to Asia’s recovery prospects,” it said.

China – Asia’s biggest economy and the world’s second-largest – saw continued expansion in manufacturing activity in June, with its official purchasing manager’s index (PMI) reading edging up to 50.9.

A PMI reading above 50 indicates an expansion, while a number below signals contraction.

China’s news orders index has risen for two straight months, but the new export orders index remained in contractionary territory in June at 42.6, although it represents an improvement from May’s 35.3 reading.

Caixin/IHS Markit has a stronger reading for China’s manufacturing PMI at 51.2.

The improvement was mainly due to stronger domestic demand despite a flare up in coronavirus cases in mid-June in some parts of China, as new export orders continued to decline.

“The gauge for future output expectations continued to rise in June, reflecting manufacturers’ confidence that there would be a further relaxation of epidemic controls and a normalisation of economic activities,” said Wang Zhe, senior economist at Caixin Insight Group.

In northeast Asia, the manufacturing PMIs for Japan, South Korea and Taiwan all rose in June but remained below the 50 mark.

For Taiwan, the June PMI rose from an 11-year low in May, backed by improvement in both both output and new orders.

In India, the manufacturing downturn eased markedly with its seasonally-adjusted manufacturing PMI in June rising to 47.2.

In southeast Asia, manufacturing conditions continued to deteriorate in June, though the rate of decline eased from the previous month.

Vietnam and Malaysia crossed to expansion territory in June.

“Although the rates of contraction in output and new orders have eased from the unprecedented drops in April and May as restrictions related to the virus have generally been loosened, ASEAN goods producers still face weak demand conditions at home and abroad,” said IHS Markit economist Lewis Cooper.

“Until there is a meaningful recovery in customer demand, it’s unlikely the sector will see any notable improvements in conditions in the months ahead,” he said.

Focus article and interactive by Nurluqman Suratman

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