NE Asia manufacturing recovery set to continue after Oct expansion

Author: Nurluqman Suratman

2020/11/02

SINGAPORE (ICIS)--Manufacturing conditions in northeast Asia continued to recover in October but external demand in the months ahead could be dampened on fresh lockdowns in the US and Europe as coronavirus infections surge.

China’s official manufacturing purchasing manager's index (PMI) moderated slightly to 51.4 in October from 51.5 in September, while the non-official Caixin PMI rose to 53.6 in October from 53.0 a month earlier.

A PMI reading above 50 indicates an expansion in the manufacturing economy.

Solid exports on the back of demand from the worst flooding in decades, pent-up demand from Covid-19 and governmental stimulus measures all contributed to solid official PMIs in recent months, which suggest China’s growth recovery is largely on track.

"An extended pandemic may eventually dampen demand for China’s exports if the purchasing power in overseas economies diminishes and they adjust their manufacturing to the new normal," said Japan's Nomura Global Markets Research.

"We expect China’s official manufacturing PMI to remain near 51.0 over the next couple of months as drivers offset drags while the official non-manufacturing PMI may slide," it said.

Chinese media group Caixin said that the latest upturn in overall sales was the sharpest since November 2010, with panellists surveyed for its PMI widely commenting that market conditions continued to recover from the pandemic earlier in the year.

"There were reports that the pandemic and rising infection rates across external markets had dampened growth of new business from overseas," it said.

The second wave of coronavirus infections in Europe and the third wave in the US have significantly suppressed China’s overseas demand, Caixin said.

Virus cases continue to surge across the US and Europe, with rising hospitalisations and death rates, prompting governments to re-impose lockdowns and restriction measures last week.

France has declared a second national lockdown until end-November while Germany's partial lockdown is set to begin on 2 November.

England over the weekend announced a four-week lockdown.

In Asia, the average of new daily cases continued to decline in India and the Philippines, while infections have stabilised in Indonesia.

Manufacturing conditions in South Korea, Japan and Taiwan continued to improve in October, with manufacturers reporting a more optimistic outlook in factory activity over coming months.

In Japan, the rate of contraction in manufacturing activity  in October was the softest since January, Japanese bank au Jibun Bank said on Monday.

The headline au Jibun Bank Japan manufacturing PMI improved to 48.7 in October from 47.7 in September, supported by softer falls in output and new work.

"An encouraging finding in October was the sustained improvement in business optimism," Usamah Bhatti, an economist at financial information services provider IHS Markit said.

"Japanese manufacturers will be particularly buoyed by the return to growth in export orders, as demand across key overseas markets such as China picked up," Bhatti said.

At 51.2 in October, up from 49.8 in September, the South Korea manufacturing PMI moved into expansion territory for the first time since December 2019.

South Korea's manufacturing sector was bolstered by a return in overseas demand and while the latest data only a fractional increase, signalled
increasing demand in key export markets such as the US and China, IHS Markit said.

In Taiwan, the manufacturing PMI was little-changed from September's two-and-a-half-year high of 55.2, posting at 55.1 in October.

The latest increase in production was the most marked since December 2016, indicating that growth was driven by greater inflows of new work and the resumption of projects that had been delayed due to the pandemic.

Total new orders at Taiwan's factories  expanded for the fourth month running in October, on stronger domestic and international demand, especially from China, Europe, Japan and the US.

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(Image: A model of coronavirus. Source: Shutterstock)

Focus article  by Nurluqman Suratman