Asia manufacturing improves in Sept, but coronavirus risks remain

Author: Nurluqman Suratman

2020/10/07

SINGAPORE (ICIS)--Asia's manufacturing economy mostly improved in September as producers continued to ramp up their operations following the easing of coronavirus restrictions, but weak external demand could still weigh on export-oriented economies in the region.

Asia's manufacturing bellwether China reported that its official purchasing managers' index (PMI) rose to a stronger-than-expected 51.5 in September from 51.0 in August, with the strength broadly based across its sub-indices.

The production and raw materials sub-indices rose to 54.0 and 48.5, respectively, in September from 53.5 and 47.3 in August, "suggesting the recovery in China remained largely smooth", Japan's Nomura Global Markets Research said in a note.

The new export orders sub-index rose to 50.8 in September – its first time above the expansion/contraction threshold of 50 since the coronavirus outbreak – from 49.1 in August, supporting a positive outlook for China’s export sector.

Separately, the Caixin manufacturing PMI, which surveys more small and medium-sized enterprises (SMEs) and export-oriented enterprises located in eastern coastal regions, remained at 53.0 in September, despite moderating from 53.1 in August.

"As growth headwinds remain strong amid elevated uncertainties stemming from Covid-19 and US-China relations, we expect China’s official manufacturing PMI to stay around 51.0 in the near term, while the official non-manufacturing PMI may soften a bit," Nomura said.

"Beijing will most likely maintain its wait-and-see policy approach through the remainder of this year by neither easing further nor tightening," it said.

The strength of the manufacturing sector will take some of the pressure off policymakers going forward, said Wang Zhe, senior economist at China's Caixin Insight Group.

"However, the job market remains worrisome, as the improvement in employment relies on a longer-term economic recovery and a more stable external environment. In the near future, great uncertainties remain about the overseas pandemic and the US presidential election," he added.

In Japan, September data indicated that the Japanese manufacturing sector moved another step closer to stabilisation, with the au Jibun Bank manufacturing PMI up to 47.7 from 47.3 in August.

New orders fell to the least marked extent since January, which highlighted a turnaround from the severe downward trend seen in the earlier stages of the pandemic, the bank said.

In South Korea, manufacturing conditions improved markedly in September, with the IHS Markit manufacturing PMI rising to its highest reading since January at 49.8 from 48.5 in August.

South Korean producers recorded an upturn in production which was linked to greater demand from specific sectors such as autos, the reopening of client businesses and easing of lockdown restrictions following the worst of the coronavirus outbreak, the financial information services provider said.

"South Korea's manufacturing sector showed signs of moving further away from April’s nadir, but if subdued domestic and foreign demand persist the path towards recovery could be lengthy.”

In India, the manufacturing industry improved further amid reports of loosened of coronavirus restrictions and higher demand.

The IHS Markit India for PMI rose to the highest in over eight-and-a-half years in September at 56.8, compared with August's 52.0.

India's exports bounced back in September following six successive months of contraction and manufacturers stepped up purchasing activity in line with greater production needs, IHS Markit said.

In southeast Asia, manufacturing conditions remained challenging amid stricter lockdown measures which resulted a renewed decline in factory production and a further fall in total new orders.

The manufacturing PMIs for Indonesia, Thailand, Malaysia and Singapore were all under 50 in September.

"With virus cases rising in some countries and in other parts of the world, the downside risks from the reintroduction of stricter lockdown measures are concerning," said Lewis Cooper, an economist at IHS Markit.

If more stringent lockdown measures are necessary across the rest of the region, there is potential for ASEAN as a whole to record a dip in performance, before any recovery, he added.

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Focus and interactive by Nurluqman Suratman