TOKYO: Factory activity in many Asian economies shrank in June as US tariff uncertainty kept demand low, but signs of modest relief for manufacturers raise the stakes in trade talks with Washington amid the region’s gloomy economic recovery prospects.
The underlying softness in private surveys released yesterday highlights the challenges facing policymakers as they try to navigate US President Donald Trump’s moves to shake up the global trade order with sweeping tariffs.
Japan’s manufacturing activity expanded for the first time in 13 months, and South Korea’s activity contracted at a milder pace, private surveys showed yesterday.
China’s Caixin purchasing managers’ index (PMI) also expanded in June due to an increase in new orders, confounding an official survey that showed activity shrinking for a third straight month.
However, stalled trade talks with the US, prospects of weakening global demand and lacklustre growth in China will likely weigh on Asia’s factory activity, analysts say.
“Overall, manufacturing supply and demand recovered in June,” said Wang Zhe, economist at Caixin Insight Group on China’s PMI.
“However, we must recognise that the external environment remains severe and complex, with increasing uncertainties. The issue of insufficient effective demand at home has yet to be fundamentally resolved,” Zhe said.
The Caixin/S&P Global manufacturing PMI rose to 50.4 in June from 48.3 in May, surpassing analysts’ expectations in a Reuters poll and the 50-mark that separates growth from contraction.
Japan’s final au Jibun Bank PMI rose to 50.1 in June from 49.4 in May due to an upswing in output, but overall demand remained weak as new orders shrank on uncertainty over US tariffs, a private sector survey showed.
Factory activity in South Korea contracted for the fifth straight month in June at 48.7, though the pace of decline eased due to companies’ relief over a snap presidential election on June 3 that ended six months of uncertainty.
“Volatility in US tariff policy and economic recovery uncertainty are expected to persist in the second half,” South Korean Industry and Trade Minister Ahn Duk-geun said, underscoring the urgency in Seoul to reach a trade deal with the US.
The comments came after separate June data showed exports from Asia’s fourth largest economy rebounded but shipments to the US and China remained weak.
Steep tariffs imposed by Trump have upended global trade and heightened uncertainty for many Asian economies heavily reliant on exports to the US market.
Negotiators from more than a dozen major US trading partners are rushing to reach agreements with Trump’s administration by a July 9 deadline to avoid import tariffs jumping to higher levels.
While China is continuing negotiations for a broader trade deal with the US – Japan and South Korea have so far failed to gain concessions on tariffs imposed on their mainstay export items like automobiles.
India was a significant outlier in the region, as manufacturing activity accelerated to a 14-month high in June, driven by a substantial rise in international sales that helped spark record-breaking hiring.
The PMI climbed to 58.4 in June from the previous month’s 57.6 and in line with a preliminary estimate released last week.
Factory activity in many other countries in Asia shrank.
Indonesia’s PMI fell to 46.9 in June from 47.4 in May, while that of Vietnam stood at 48.9 in June, down from 49.8 in the previous month, the private surveys showed.
Malaysia’s PMI rose slightly to 49.3 last month, from 48.8 in May, while that of Taiwan dropped to 47.2 in June from 48.6 in the previous month, the surveys showed.
Shivaan Tandon, markets economist, at Capital Economics, said that given the broader weakness in manufacturing in the region, policymakers are likely to focus their attention on reviving growth.
“With worries about growth having taken precedence over those about inflation, we think most central banks in the region will continue to loosen monetary policy and by more than most analysts expect.” – Reuters
