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Weakened demand from China drags down Asian factory output significantly.

TraderKnows
TraderKnows
04-30

The worst period may have passed for Asian businesses, but economic activity lacks momentum due to the increasingly dim prospects for a strong rebound in the Chinese economy.

  1. China's June Caixin PMI Slightly Expands
  2. Factory Activity in Japan, South Korea Sharply Declines
  3. Economic Activities Contract in Most Emerging Asian Countries
  4. Surveys Highlight Pessimism Spreading Due to Weak Economic Growth in China

Business surveys released on Monday show a significant downturn in Asian manufacturing activity in June, as low demand from China and developed countries cast a shadow on the prospects for the region's exporters. Despite a slight expansion in China's manufacturing activity, manufacturing activities in Japan and South Korea have contracted due to Asia's fragile economic recovery struggling to maintain momentum.

These surveys highlight the slower-than-expected pace of China's economic recovery from pandemic lockdowns and its impact on Asia. At the same time, Asian businesses are preparing for the impact of significant interest rate hikes in the US and Europe.

Toru Nishihama, chief emerging markets economist at Dai-ichi Life Research Institute, notes that the worst period for Asian businesses may be over, but economic activity lacks momentum due to the increasingly uncertain prospects of a strong recovery in China. Asia's manufacturers are pessimistic about their prospects due to China's hesitance in implementing stimulus plans and the potential impact of significant interest rate hikes on the US economy.

A survey released on Monday shows the Caixin/S&P Global manufacturing purchasing managers' index (PMI) for China dropped from 50.9 in May to 50.5 in June, remaining above the 50-point mark that separates expansion from contraction. Combined with official survey results released last Friday, this shows the world's second-largest economy lost momentum in the second quarter.

This impact is also reflected in Japan, where the manufacturing PMI for June dropped to 49.8, marking the first contraction in seven months. The Japanese PMI survey indicates that new orders from overseas customers declined at the fastest rate in four months in June, reflecting weak demand from China.

South Korea's PMI dropped from 48.4 in May to 47.8 in June, marking a record 12th consecutive month of downturn due to weak demand from Asia and Europe. Moreover, the PMI surveys show that factory activities in Taiwan, Vietnam, and Malaysia have also contracted.

The Asian economy heavily depends on China's strong performance. China experienced a growth rebound in the first quarter, but it was below expectations. The fate of the Asian economy, including China, will have a significant impact on the global economy. Aggressive monetary tightening measures to curb inflation could restrain economic growth in the US and Europe.

The International Monetary Fund (IMF) projected in May that after growing 3.8% in 2022, the Asian economy is expected to grow by 4.6% this year, contributing about 70% to global economic growth. However, the institution has lowered its growth forecast for Asia next year to 4.4% and warned of risks such as higher-than-expected inflation and a slowdown in global demand.

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