World economy: Asia’s factory activity is growing, but the crisis in Ukraine is clouding the outlook

Employees wearing face masks work at a factory of components maker SMC during a government-organized factory tour following the outbreak of the coronavirus disease (COVID-19) in Beijing, China May 13, 2020. REUTERS/Thomas Peter

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• China’s factory activity returns to growth in February
• Factory activity growth in Japan slows to a 5-month low
• The Ukraine crisis could hurt Asia with oil spikes and supply disruptions

TOKYO, March 1 (Reuters) – Asia’s factories recovered quickly in February on signs the coronavirus was having less of an impact on business, but the Ukraine crisis has quickly become a new risk disrupting supply chains and could exacerbate cost pressure.

Heavy international sanctions against Russia in response to its invasion of Ukraine have rattled markets and pushed up oil prices, creating an additional headache for Asian economies and companies already suffering from rising input costs. Continue reading

Chinese factory indicators, both official and private sector, showed activity remained in expansionary territory, suggesting the world’s second largest economy is resilient despite cost pressures.

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Manufacturing activity also picked up in Malaysia, Vietnam and the Philippines as they gradually reopened their economies, although omicron infections continued to spread, surveys showed.

But Japan’s factory activity growth slowed to a five-month low in February on ongoing COVID-19 containment and rising input costs.

The expansion of activity also slowed in Taiwan and Indonesia in a sign of the ongoing impact of supply chain disruptions caused by the pandemic.

The polls show the fragile state of Asia’s recovery even before the Ukraine crisis.

“The most immediate blow to the crisis will come from rising oil prices, which will deal a severe blow to many Asian economies,” said Toru Nishihama, chief economist at the Dai-ichi Life Research Institute in Tokyo.

“Russia is a major exporter of gas, rare metals and other commodities critical to chip production. That means the crisis could exacerbate supply chain disruptions, which would be bad news for countries like Japan, South Korea and Taiwan.”

China’s factory activity returned to growth in February on rising new orders, a private survey showed on Tuesday, although employment continued to shrink. Continue reading

Separately, China’s official manufacturing purchasing managers’ index (PMI) rose to 50.2 in February, staying above the 50-point mark separating growth from contraction. It hit 50.1 in January, beating analysts’ estimate of a slowdown to 49.9. Continue reading

Japan’s PMI slipped to 52.7 in February from 55.4 in January, marking the slowest expansion since September last year. Continue reading

“Significant supply chain disruptions that dampened production and demand in the last survey period were attributed to severe material shortages and delays in shipments,” said Usamah Bhatti, economist IHS Markit, who compiles the survey.

Taiwan’s PMI fell to 54.3 from 55.1 in January, while Indonesia’s slipped to 51.2 from 53.7, the polls showed.

The index for Malaysia rose to 50.9 in February from 50.5, while that for Vietnam rose to 54.3 from 53.7 in January.

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Reporting by Leika Kihara; Editing by Sam Holmes

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