Costs, Covid-19 hit factories in Asia

Input costs and Covid-19 hit Asian factories

Factories in Asia faced difficulties in July due to high input costs and the outbreak of the Covid-19 pandemic.

Electric vehicle assembly line at BYD automobile factory in Jiangsu province, China. Photo: AFP

Those two reasons have overshadowed the solid recovery in global demand, while also highlighting Asia’s fragile recovery, according to analysts.

Manufacturing activity in the two export powerhouses Japan and South Korea is still increasing, although businesses in these two countries have been affected by supply chain disruptions caused by the pandemic and raw material shortages. costs increased.

According to the latest report by Jibun Bank of Japan, the country’s purchasing managers’ index (PMI) in July rose to 53.0, from 52.4 in the previous month, although manufacturers have to at a disadvantage due to the fastest increase in input prices since 2008.

Japan also faces a rising wave of Covid-19 infections due to the Delta variant, forcing the government to extend the application of a state of emergency in many localities until August 31. This development poured cold water on the strong recovery of the world’s 3rd largest economy in the third quarter of 2021.

In South Korea, the PMI in July also increased to 53.0, marking the 10th consecutive month of increase. But the sub-index on input material prices has increased to a record high, which shows that businesses in Korea are also having a headache with the high cost of input materials.

On the other hand, according to the results of a private survey published this morning by Caixin/Markit, the growth rate of factories in China in July fell sharply as demand fell for the first time in more than a year. .

Caixin/Markit said China’s manufacturing PMI fell to 50.3 in July, well below the 51.1 expected by experts in a Reuters poll. In June, this index reached 51.3.

China’s factory sector growth in July hit its slowest pace in 17 months as soaring raw material costs, equipment maintenance and natural disasters weighed on business activity, heightening concerns. concerns about the recession of the world’s second largest economy.

The official manufacturing PMI in July fell to 50.4, from 50.9 in June, according to data from the China Statistics Authority (NBS). This is the lowest number since. when this index dropped to 35.7 points in February 2020 – the time when China began to blockade to fight the epidemic.

A separate manufacturing PMI for manufacturing fell to 51.0, from 51.9 in June, due to equipment maintenance and extreme weather, an official from the China Statistics Authority explained. Meanwhile, demand also weakened as the new orders sub-index of factories in China also dropped to 50.9, from 51.5.

“The most alarming signal is that the new export orders index is at its lowest level since July last year,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management. Specifically, this index has decreased for 3 consecutive months and reached 47.7 in July.

On the contrary, the raw material cost sub-index in July increased sharply to 62.9, from 61.2 recorded in June. The high price of raw materials affected the profit of manufacturers. China and hinder some export enterprises from receiving new orders.

According to Reuters, Chinese authorities are trying to prevent factories from passing on rising production costs to consumers, to avoid further “headaches” for the Chinese economy because basic demand is still intact. feebleness.

Meanwhile, Indonesia, Vietnam, and Malaysia also saw factory activity decline in July due to the wave of Covid-19 infections and the tightening of anti-epidemic measures, according to private surveys. core.

Surveys show that the resilience of the world’s economies is increasingly differentiated. This is also the reason why the International Monetary Fund (IMF) lowered its growth forecast for 2021 for emerging Asia.

Usamah Bhatti, chief economist at market analysis firm IHS Markit said: “The evidence suggests that the widespread wave of Covid-19 infections across Asia and the current supply chain disruptions have dragged on. reduced demand in domestic and foreign markets”.

At the Covid-19 epidemic hotspot like Indonesia, the PMI in July dropped sharply to 40.1, from 53.5 in June. Industrial production in Vietnam and Malaysia also declined due to the epidemic. according to July PMI survey results.

Once considered a growth engine for the world economy, the resilience of emerging Asian economies is weaker than that of developed economies. The main reason is that the delay in deploying the Covid-19 vaccine has adversely affected domestic demand, especially tourism-dependent economies.