Asian factories paint uneven recovery picture in September

(October 3): Asian factories posted a split recovery trajectory in September, with northern manufacturing powerhouses weakening and key southern supply chain hubs showing resilience in the face of slowing Chinese growth.

Purchasing managers’ indices (PMIs) for much of Southeast Asia showed improvement, with Indonesia at 53.7 matching its January reading for the best of this year. Thailand’s reading was a record high in data dating back to 2016, and the Philippines also rose slightly in September. Malaysia was a rare weakener in Southeast Asia, slipping to 49.1 from 50.3 in August.

A reading above 50 indicates expansion from the previous month, while anything below indicates contraction.

North Asia showed more pain in the September PMIs. Taiwan and Japan slowed from the previous month, with Taiwan’s PMI index dropping to 42.2, its worst since the pandemic-era low in May 2020, according to S&P Global. South Korea’s PMI is due out on Tuesday, October 4.

The factory figures are just one element of an increasingly bleak outlook for the global economy, with a wave of interest rate hikes yet to overcome runaway inflation and concerns over upward growth. China’s economic slowdown is beginning to weigh more heavily on trade-dependent neighbors, and supply chain safeguards persist around the world.

Slumping demand for technology and semiconductors is weighing on exports from Northeast Asian manufacturing powerhouses, including South Korea, Taiwan and Japan, and weighing on producer sentiment.

Confidence among major Japanese manufacturers has unexpectedly deteriorated for three consecutive quarters following the rapid depreciation of the yen and deteriorating global economic outlook. A sentiment index among the country’s biggest manufacturers fell to 8 in September from 9, according to the Bank of Japan’s quarterly Tankan report released on Monday.

Businesses don’t expect improvement “anytime soon” as business confidence for the year ahead hit its second-lowest level on record, said Annabel Fiddes, associate director of economics at S&P. Global Market Intelligence, in a press release. “This was driven by fears that global economic conditions could weaken further and demand in key markets in Asia, Europe and the United States will continue to decline in the coming months.”

China’s official manufacturing purchasing managers’ index rose last month to 50.1 – barely in expansion territory – from 49.4 in August, according to a statement from the National Bureau of Statistics on Friday.

As Chinese PMIs show incipient signs of bottoming, economists warn that the biggest hit for Asian exporters is yet to come. Taiwan factories saw the fastest drop in production and sales since May 2020 and inventories fell at the fastest rate in more than a decade.

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