Asia manufacturing continues recovery in May despite COVID-19 restrictions

Author: Nurluqman Suratman

2021/06/04

SINGAPORE (ICIS)--Asia's manufacturing sector continued to expand in May despite fresh restrictions imposed to stem a surge in COVID-19 cases in some economies.

China’s manufacturing sector outlook remains supported by the reopening of economies in Europe and the US, but there are soft spots mainly from supply constraints and higher shipping costs, according to Singapore's UOB Global Markets & Research.

China's official manufacturing purchasing managers' index (PMI) for May remained above the 50.0 threshold at 51.0, slipping from April's 51.1.

Higher production at China's factories were outweighed by declines in new export orders, which fell back into contraction territory at 48.3 in May from 50.4 in April.

Caixin's China manufacturing PMI, which includes many smaller and private firms, rose to 52.0 in May from 51.9 in April supported by greater demand both domestically and overseas.

"The solid May PMI prints point to strong resilience of the Chinese economy amid the recent, small-scale resurgence of COVID-19 in Anhui, Liaoning and Guangdong and Beijing’s carbon neutrality environmental campaign," said Japan's Nomura Global Markers Research.

"However, we expect downward pressure on growth to increase in H2, especially in Q4 2021, as pent-up demand subsides, exports weaken as reopening developed markets shift back to services consumption, property tightening measures finally bite, and surging raw material prices suppress real demand," it said.

Manufacturing firms remained confident that output would increase over the year ahead amid forecasts of rising customer demand and new product releases, Caixin said.

However, sentiment was weighed by concerns over rising costs and pandemic-related uncertainty, it said.

In Japan, manufacturing activity slowed down amid softer expansions in both production volumes and new orders with the au Jibun Bank PMI edging down to 53.0 in May from 53.6 in April.

Foreign demand for Japanese manufactured goods remained in expansion territory in May, with firms citing stronger demand in key markets, notably in China.

Meanwhile, manufacturing activity in South Korea and India remained expansionary in May but showed a drop in their PMIs. (see interactive below)

"The Indian manufacturing sector is showing increasing signs of strain as the COVID-19 crisis intensifies," said Pollyanna De Lima, economics associate director at financial information services provider IHS Markit.

Key gauges of current sales, production and input buying weakened noticeably in May and pointed to the slowest rates of increase in ten months, De Lima said.

"The overall degree of optimism towards the year-ahead outlook for output was at a ten-month low [in May], a factor which could hamper business investment and cause further job losses," she added.

In southeast Asia, the manufacturing sector continued on its recovery path last month, led by the region's largest economy Indonesia while Singapore returned to growth following a decline in April.

Thailand, however, saw a renewed deterioration in May, with the PMI for the country falling to a three-month low of 47.8.

Focus article by Nurluqman Suratman