Asian Manufacturing Is Surging on Strong Global Goods Demand
01 Apr 2021
The world’s manufacturing heartland in east Asia is booming as global trade surges amid the recovery from the pandemic, data from several countries showed.
South Korea’s exports rose the most in more than two years in March, while Japan’s large manufacturers turned optimistic for the first time since autumn 2019, figures released Thursday showed. Manufacturing across Asia picked up after the volatile Lunar New Year period, according to purchasing managers’ indexes, indicating the recovery in goods production remains broadly on track.
The data underline how demand for Asian exports is gaining from continued economic stimulus in countries such as the U.S., while vaccination efforts in developed countries raises the odds of a “V-shaped” recovery this year for the global economy.
“As the vaccine roll-outs gather steam in developed markets, that’s always going to be a boost for Asia,” said Nick Marro, lead trade analyst at the Economist Intelligence Unit, with Taiwan and South Korea in particular benefiting from demand for microchips. “But that doesn’t mean it’s a rising tide lifting all boats. There is still going to be pain from the chip shortage for auto exporters, and we are seeing some of this bleed into electronics.”
South Korea’s exports rose 16.6% from a year earlier in March, the fastest pace since 2018, data Thursday showed. Shipments to the U.S. and European Union gained strongly — with values reaching some of the highest levels on record — while sales to China racked up solid increases.
A separate report from IHS Markit showed a purchasing managers’ index for Korean manufacturing held at 55.3, unchanged from February, which was its strongest reading since 2010. Readings above 50 indicate conditions improved from the previous month.
In Japan, sentiment at large makers of cars, electronics and other products improved to 5 in March, breaking above zero for the first time since September 2019, the Bank of Japan’s Tankan survey showed. The positive result indicates optimists outnumbered pessimists, and the figure was stronger than a -1 forecast by economists.
“That means the government won’t need a big sweeping stimulus package like the U.S., but just needs to help certain sectors,” said economist Hideo Kumano at Dai-Ichi Life Research Institute.
China’s Caixin manufacturing PMI, which tracks smaller manufacturers, fell to 50.6 from February’s 50.9, while the sub-index of new export orders rose to 51.4 from 47.6. The data came a day after the country’s official PMI rose in March, with the industrial, services and construction sectors improving after the Lunar New Year holidays on the back of strong domestic and international demand.
“Both PMIs suggest recovery in export orders and elevated inflationary pressure in March,” Goldman Sachs analysts said in a note.
Elsewhere in Asia, Taiwan’s IHS Markit manufacturing PMI for March climbed to 60.8, its highest level in more than a decade, and PMIs from Vietnam and Indonesia remained in expansion. Malaysia and Thailand, while still below 50, inched closer to the level that separates expansion from contraction.
“Strong global demand for electronics, which has proved a key driver of industrial output, will probably soften further ahead as vaccines help a shift back to normality in key export markets. But this boost is still likely to endure for the next few months at least,” said Alex Holmes, Asia economist at Capital Economics Ltd. “As such, Asian industry looks likely to remain strong in the near term, helping recoveries to stay on track.”
Earlier this week, the World Trade Organization raised its projection for 2021 trade growth to 8%, the largest increase since 2010. The rebound marks a significant bounce from 2020, when the pandemic saw global trade contract by 5.3%, the WTO said.
Global trade in goods rebounded relatively quickly during the pandemic, as consumers in developed countries continued to spend on manufactured products even as they cut spending on services with mobility restricted. World trade in January reached its highest monthly level since 2018, according to the European Commission-backed CPB world trade monitor.
Bloomberg Economics forecasts the global economy will grow 6.9% this year, fast enough to bring output substantially back onto its pre-Covid path, led by recoveries in the U.S. and China.
International Monetary Fund Managing Director Kristalina Georgieva said this week the lender would upgrade its global growth forecast next week. However, the IMF also sounded a note of caution on long-term economic “scarring” due to the pandemic, releasing a study estimating that by 2024 the world economy will still be about 3% smaller than expected before the pandemic, as developing countries and nations dependent on tourism struggle for longer.