Singapore: Asia’s factories contracted further in March as the coronavirus wreaked havoc on supply chains. China was the standout, with a private survey showing an improvement in manufacturing in line with the government’s official measure.
Almost all of the other regional purchasing managers indexes (PMI) fell further below 50, the dividing line between contraction and expansion, according to data released by IHS Markit on Wednesday. The Jibun Bank Japan index, at 44.8, and South Korea’s PMI, at 44.2, posted their worst readings since the global financial crisis more than a decade ago.
There was a hint of a bottom in China as the Caixin Media and IHS Markit PMI rose to 50.1 from 40.3 in February. Output rose to 50.6 compared with 28.6 and new orders were also up. That followed a bounce in the official PMI, though economists caution the better reading was inevitable as workers returned after an unprecedented shutdown and doesn’t yet signal a firm rebound.
Pain across Asia
Across Southeast Asia, the pain was felt acutely, with the Philippines dropping to 39.7, the lowest since records began in 2016, and Vietnam slipping to 41.9. Taiwan’s PMI rose above 50.
The factory sentiment data reflects a worsening in the coronavirus outbreak in March. A surge in cases in Italy, Spain, and the U.S. brought those economies to a halt, providing an additional punch to Asian nations that have been battling the virus for months.
“As the region increasingly has less mobility due to measures to contain the virus, the April PMI will show weakness,” said Trinh Nguyen, a senior economist at Natixis SA in Hong Kong. “Even more worrying is its biggest customers - the U.S. and the EU - are not consuming and thus will hurt new orders in the second quarter of 2020.”
Central banks have slashed rates and ramped up bond-buying and other liquidity measures to stabilize financial markets, while governments have unleashed eye-popping amounts of stimulus to aid consumers and businesses as the global economic outlook quickly darkens.
Sharp fall in growth
Even in the best scenario, growth is likely to weaken considerably in 2020. The path of the virus outbreak domestically and internationally will determine the trajectory of regional economies. Even those such as China and South Korea that have shown early success in containing the virus will not be able to escape a hit from a sudden stop in global economic activity. The dramatic monetary and fiscal support being rolled out across the region will at most just cushion the blow.
The weak reading for South Korea came as government data showed exports declined 0.2% in March from a year earlier amid weak global demand and crunched supply chains.
“Given its heavy exposure to trade and the global economic cycle, the worst for manufacturers may yet be to come,” Joe Hayes, an economist at IHS Markit said in a release.