Asia’s factories struggle for growth as China, Japan falter

Asia’s major manufacturing economies struggled to claw their way out of decline in February with Japan particularly squeezed by a steeper fall in demand while an uneven recovery in China overshadowed some signs of improvement elsewhere in the region.

A raft of business surveys released on Friday highlighted a patchy performance across Asia with Japan’s manufacturing purchasing managers’ index (PMI) showing factory activity falling at the fastest pace in more than three years.

There were more mixed signals out of China with the government’s official PMI showing factory activity continuing to fall, in contrast to a slight pick up seen in the private-sector Caixin PMI.

“February PMI data indicated another month of deteriorating operating conditions in the Japanese manufacturing sector,” said Usamah Bhatti at S&P Global Market Intelligence.

“Depressed demand in domestic and international markets continued to weigh on sector performance, as both production and new orders fell at the strongest rate for a year.”

Worryingly, recent data suggests the weakness seen in Japan in the second half of last year has extended into the first quarter of 2024, complicating the Bank of Japan’s task as it looks to exit ultra-easy monetary policy.

Japan unexpectedly slipped into recession in the fourth quarter and lost its title as the world’s third-largest economy to Germany as consumer and business spending weakened.

Its PMI followed official Japanese data this week that showed factory output falling at the fastest pace since May 2020, weighed by a downturn in motor vehicle production.

China’s patchy performance comes amid signs the world’s second-largest economy is tentatively finding its footing after a deep slump caused by a property sector crisis.

Investors are looking ahead to China’s annual meeting of parliament next week where policymakers will face pressure to do more to get the economy back on track.

Elsewhere in Asia, semiconductor powerhouse Taiwan also saw factory activity decline at a somewhat sharper pace.

But there were some signs that conditions were continuing to improve in other parts of the region.

South Korean export growth exceeded market forecasts in February, expanding for a fifth successive month as a surge in semiconductor demand made up for a decline in vehicle sales.

India’s PMI showed manufacturing activity expanded at its fastest pace in five months, led by accelerated global demand and lower inflationary pressures.

That followed data on Thursday that showed India’s economy grew at its fastest pace in one-and-half years in the final three months of 2023, led by strong manufacturing and construction activity.

Elsewhere, Southeast Asia’s key factory economies mostly saw growth with PMIs in Vietnam, Indonesia and the Philippines all pointing to expansion in activity although Malaysian and Thai PMIs both showed continued activity declines.