Asia manufacturing faces Q4 gloom; export demand may weaken further

Nurluqman Suratman


SINGAPORE (ICIS)–Asia’s factories will likely face continued weakness in export demand in the fourth quarter as European and the US economies may be looking at a sharp slowdown.

Major central banks around the world continue to hike interest rates to tame runaway inflation, raising fears of a sharp downturn in global demand, which poses a serious threat to Asia’s export-oriented economies.

In September, industries across the region posted a general deterioration in business conditions.

China, the world’s second-biggest economy, was an exemption based on its official September PMI reading of 50.1, which reverted to expansionary mode from 49.4 in the previous month.

But its new export orders sub-index fell to 47.0, down from August’s 48.1 and the lowest recorded in four months.

“The weaker new orders also appeared to be behind the decline in the Caixin manufacturing PMI,” said Singapore-based UOB Global Economics & Markets Research economist Ho Woei Chen in a note.

A private survey of small and medium enterprises by Chinese media firm Caixin, however, showed China’s PMI last month dropped further to 48.1 from 49.5 in August.

Concerns over potential repeated COVID-19 outbreaks and prolonged use of containment measures weighed on optimism towards future output, Caixin said.

“The divergence in the two sets of manufacturing PMIs suggests that we should be cautious to infer a turnaround in the manufacturing sector in September given that some segments, in particular the smaller manufacturing companies and exporters, likely continue to face challenges,” UOB’s Ho said.

“Notwithstanding the improvement in the official manufacturing PMI in September, the manufacturing sector could be faced with greater downside risk in the coming months as the environment in the US, Eurozone and UK turns recessionary,” Ho said.

For Japan, the headline PMI index for September weakened to 50.8, the lowest level recorded since January 2021, from 51.5 in August as downturns in output and new orders accelerated, according to au Jibun Bank.

High prices and weak market conditions caused manufacturers’ clients to rein in spending, while weaker demand from international markets was evidenced by a further reduction in new export orders.

Inflationary pressures at Japanese manufacturers also accelerated at the end of the third quarter.

For South Korea, the manufacturing sector also fell deeper into contraction territory in September, with a PMI reading of 47.3, down from 47.6 in August. This was the third successive monthly deterioration in the health of the country’s factories, according to financial information and analytics firm S&P Global.

New orders received by South Korean manufacturers slumped in September, reflecting weak demand conditions in both domestic and external markets, it said, adding that subdued economic conditions at key trading partners and high inflation were commonly cited reasons for falling new business intakes.

For Taiwan, September PMI fell to 42.2 from 42.7 the previous month, indicating a fourth month of deterioration in overall business conditions and the lowest recorded since May 2020.

“The rate at which new orders [in Taiwan] declined was the sharpest since the initial phase of the pandemic in May 2020… New export work likewise fell at the quickest rate in 28 months during September,” S&P Global said.

In southeast Asia, manufacturing conditions in Vietnam, Malaysia and Singapore weakened in September as poor external conditions dampened output from new orders.

The September PMI for both Malaysia and Singapore fell to contraction territory at below 50, while that of Vietnam’s edged lower but remained in expansion mode.

For Singapore, it was the first time in more than two years that factory production shrank.

Meanwhile, India’s September PMI slipped to 55.1, down from August’s 56.2 but marked the 15th straight month that the headline index is in expansionary territory, according to S&P Global.

Inflationary pressure in the south Asian country eased for goods producers, with input costs rising at the slowest pace since October 2020, according to S&P Global.

“This retreat in cost inflationary pressures helped curtail the latest upturn in selling prices, which was modest and the slowest in seven months,” it added.

Focus article by Nurluqman Suratman

Thumbnail image: Aerial photo of Qinzhou port in south China’s Guangxi Zhuang Autonomous Region – 14 September 2022. (Source: Xinhua/Shutterstock)

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