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Asian factories harmed by supply disruptions linked to the epidemic

1 Sep 2021 11:15 AM

Factory activity in Asia lost momentum during August, as renewed cases of coronavirus disrupted supply chains across the region, raising fears that faltering manufacturing would add to the economic problems stemming from declining consumption.

Surveys on Wednesday showed Southeast Asia, a low-cost manufacturing hub for many global firms, was hit hard with factory activity in Vietnam, Indonesia and Malaysia slashing due to virus outbreaks and production suspensions.

In a worrying sign for the global economy, factory activity in China also slid into deflation in August for the first time in nearly a year and a half as coronavirus restrictions, supply bottlenecks and rising raw material prices weighed on production.

Energy exporters in Japan, South Korea and Taiwan also saw industrial activity expand at a slower pace in August, and chips shortages and factory closures in the region could delay a sustainable recovery from the recession caused by the pandemic.

The weakness in Asia contrasts with conditions in Europe, where factories are often expected to maintain a rapid pace of expansion as their highly fortified economies reopen. The surveys highlight the growing damage of the pandemic in Southeast Asia, where rising infections and subsequent lockdown measures have hit the service and manufacturing sectors.

A private sector survey on Wednesday showed that China's manufacturing PMI fell to 49.2 in August, from 50.3 in July, below the 50 mark that separates growth from contraction. The result was well below market expectations, underscoring the fragile nature of China's recovery that helped the global economy out of the pandemic-induced slump.

The private survey came on the heels of the official PMI released on Tuesday, which showed the index declined in August but remained above the 50 mark.

Japan's PMI fell to 52.7 from 53.0 in July as new export orders posted their first contraction since January. South Korea's index also fell to 51.2 in August from 53.0 in July.

And in Vietnam and Malaysia, activity has been hit by shutdowns and rising infections that have forced some factories to suspend operations.

Vietnam saw factory activity shrink to 40.2 from 45.1 in July. Malaysia's PMI settled at 43.4 in August, up from 40.1 in July but still well below the 50 mark.

Previously seen as an engine of global growth, emerging Asian economies lag behind advanced economies in recovering from the damage of the pandemic, as delays in the release of vaccines and a sudden rise in mutated delta cases have hurt consumption and factory production. Growth in India's factory sector activity also slowed as ongoing weakness linked to the pandemic weighed on demand and production, forcing companies to cut jobs again after a brief rebound in July.

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