Factories in SE Asia are firing up as China reopens - MIDA | Malaysian Investment Development Authority
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Factories in SE Asia are firing up as China reopens

Factories in SE Asia are firing up as China reopens

07 Feb 2023

Asia’s manufacturers are improving at the start of the year as the region becomes more optimistic about the boost from China’s reopening, while activity in the euro area shows the downturn is softening as cost pressures ease. 

Factories in South-East Asia (SE Asia) ramped up production and purchasing in January as new orders piled in, data from S&P Global manufacturing Purchasing Managers’ Indexes (PMI) showed on Jan 1. Signs that prices are softening and supply chain disruptions are easing also lifted business confidence for factory output over the next 12 months. 

The gauge for the eurozone improved for the third consecutive month, rising to 48.8 from 47.8 in December. Numbers were on an upward trend across the region. 

The reading for French factories went above 50 for the first time since August, while Italy reversed six months of negative readings. The manufacturing slump in Germany continued for a seventh month, however, although the reading of 47.3 was an unexpected improvement from 47.1 in December. 

The energy market in Europe has stabilised, thanks in part to mild weather and state subsidies, and supply-chain constraints have eased significantly, according to S&P Global Market Intelligence chief business economist Chris Williamson. Business optimism about the year ahead has also surged higher. 

“Although euro-area manufacturers continued to report falling output and deteriorating orderbooks in January, sustaining the sector’s downturn for an eighth successive month, the picture is considerably brighter than the lows seen back in last October,” he said. 

Thailand led SE Asia with a January PMI reading of 54.5 — a jump from 52.5 the prior month. The Philippines and Indonesia also posted readings above 50, the threshold separating expansion from contraction. 

Other countries in the region remained in negative territory last month, but most saw manufacturing conditions improve. Malaysia was the only country in the region where conditions worsened as PMI fell to a 17-month low of 46.5. 

“With supply-side pressures easing, and inflation rates below their post-pandemic averages, this could support further improvements in business conditions in the months ahead,” S&P Global Market Intelligence economist Maryam Baluch said of SE Asia’s performance. “It’s vital that demand conditions continue to recover and are able to support growth momentum into the rest of 2023.” 

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

Surveys for both countries, though, suggested that factories were increasing employment in anticipation of improving global economic conditions that would spur new business. That was better than the outlook in Taiwan, where the PMI slump deepened to 44.3 from 44.6. Manufacturers there held a sombre outlook, trimming their buying activity and inventory. 

The data provide a sharper view of how the global demand outlook is impacting some of the world’s most critical trade engines. 

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

The Washington-based institution still upgraded its global growth forecast slightly, though, in part on optimism that China’s reopening will buttress demand. The emergence of the world’s second-largest economy from its 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 Jan 31’s strong official PMIs was that China has started a brisk recovery, the message from Feb 1’s Caixin report is that a significant swath of the economy continues to struggle,” said Bloomberg Economics Chang Shu. “To be sure, the rise in the Caixin manufacturing gauge in January reinforces our view that conditions are on the mend. But a reading still below 50 in contractionary territory suggests exporters and small companies are lagging in the recovery.” 

Data in China showed some signs of a pickup last month, though the week-long Chinese New Year holiday likely weighed on factory activity since many workers went home to celebrate the period with their families. Covid’s spread through the country also sickened some workers. 

A private survey of factory activity on Feb 1 showed the sector had yet to recover, though the fall in output and new orders moderated. The Caixin Manufacturing Index — which covers mainly smaller and export-oriented businesses — inched up to 49.2 in January from 49 the month before. The official PMI, which covers larger and state-owned firms, showed a slight expansion earlier last week.

Source: Bloomberg