Southeast Asian factories catch fire as China reopens

Thailand led the region with a January PMI of 54.5

An aerial view of the factories located in Pintong industrial town in Chon Buri province. (Photo: Pintong Industrial Town)

JAKARTA: Asian producers are recovering at the start of the year as the region grows more optimistic about how China’s reopening may help offset the gloomy outlook for the rest of the world.

S&P Global manufacturing purchasing managers’ indicators (PMIs) data showed on Wednesday that factories in Southeast Asia increased output and purchases in January as new orders piled up. Signs that prices are softening and supply chain disruptions are easing boosted business confidence for factory output over the next 12 months.

Thailand led the region with a January PMI of 54.5 – a jump from 52.5 the previous month. The Philippines and Indonesia also recorded values ‚Äč‚Äčabove 50, indicating the separation of expansion from contraction.

While other Southeast Asian countries remained in negative territory last month, most of them saw improvement in production conditions. Malaysia was the only country in the region to worsen as the PMI fell to a 17-month low of 46.5.

“With supply-side pressures easing and inflation below post-pandemic averages, this could support further improvement in business conditions in the coming months,” Maryam Baloch, economist at S&P Global Market Intelligence, said of Southeast Asia’s performance. It is vital that demand conditions continue to improve and can support growth momentum in the rest of 2023.

However, activity in North Asia was more mixed. South Korea’s manufacturing PMI improved slightly to 48.5 from December’s 48.2, although it was still below 50. Japan was flat at 48.9 as in the previous month.

However, surveys for both countries indicated that factories are increasing employment, anticipating an improvement in global economic conditions that will fuel new business. That was better than the outlook for Taiwan, where the PMI slumped to 44.3 from 44.6. Manufacturers there had a gloomy outlook and reduced their purchasing activity and inventory.

The data provides a clearer view of the impact of the global demand outlook on some of the most vital engines of world trade.

The International Monetary Fund (IMF) reiterated this week that tight monetary policy among central banks and Russia’s invasion of Ukraine will continue to weigh on economic activity throughout the year.

The Washington-based institute also raised its global growth forecast slightly, partly on optimism that China’s reopening will boost demand. The emergence of the world’s second largest economy from a strict Covid Zero strategy last year has also raised hopes in Asia that the region’s biggest trading partner will soon generate more demand for goods.

If the message from Tuesday’s strong official PMI was that China has begun a rapid recovery, the message from Wednesday’s Caixin report is that a significant part of the economy continues to struggle. Certainly, a rise in the Caixin production gauge in January reinforces our view that conditions are improving. But a number still below 50 in contractionary territory suggests exporters and small firms are lagging behind in the recovery.

Data in China showed signs of a pickup last month, although the week-long Lunar New Year holiday likely affected factory activity as many workers went home to celebrate the period with their families. The spread of Covid-19 across the country also made some workers sick.

A private survey of factory activity showed on Wednesday that the sector had not yet recovered, although production cuts and new orders moderated. Caixin’s manufacturing index – which covers mostly smaller, export-oriented businesses – rose to 49.2 in January from 49 the month before. The official PMI, which covers larger firms and the government, showed slight growth earlier this week.

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