Pandemic slams factories in Asia

Activity sinks to new lows in April

SYDNEY: Asia’s factory activity was ravaged in April, business surveys showed yesterday, and the outlook dimmed further as government restrictions on movement to contain the coronavirus outbreak froze global production and slashed demand.

A series of Purchasing Managers’ Indexes (PMIs) from IHS Markit fell deeper into contraction from March, with some diving to all-time lows and others hitting levels last seen during the 2008-2009 global financial crisis.

The PMI for South Korea, Asia’s fourth-largest economy and a global manufacturing powerhouse, skidded to 41.6 in April, the lowest reading since January 2009. Japan’s PMI released last week similarly fell to an 11-year low.

“The bad news is that the hit to industry in many places is unlikely to be past the worst,” Alex Holmes, Asia Economist at Capital Economics, wrote in a note.

“Global demand has slumped and we don’t think it has bottomed out yet. The latest incoming data for the US and Western Europe point to an unprecedented slump in demand. And while China’s economy has started to recover, demand there remains very weak.”

Last week, China’s official PMI showed factory activity still growing in April, albeit more slowly than March, while the private-sector Caixin PMI showed a dip into contraction, although at a much gentler pace than the rest of the world. Significantly, exporters in both surveys were jolted by steep falls in orders.

While China appears to be ahead of others in emerging from the economic paralysis inflicted by the pandemic, any recovery is expected to be gradual and unlikely to fire up an immediate resurgence in global demand.

The PMI for Taiwan, a major producer of high-end technology components, fell to 42.2, its lowest since 2009 and down from an expansionary 50.4 in March.

The declines in South Korea’s and Taiwan’s PMIs showed contractions that were less severe than those seen in other economies in the region, with indicators in India, Malaysia, Indonesia and Vietnam all reporting plunges to record lows.

In India, Asia’s third-largest economy, new orders and output shrank. The Nikkei Manufacturing Purchasing Managers’ Index, compiled by IHS Markit, plunged to 27.4 last month from March’s 51.8, by far its lowest since the survey began in March 2005 and its first time below the 50-mark separating growth from contraction in nearly three years.

“After making it through March relatively unscathed, the Indian manufacturing sector felt the full force of the coronavirus pandemic in April,” noted Eliot Kerr, economist at IHS Markit. “Record contractions in output, new orders and employment pointed to a severe deterioration in demand conditions.”

With new orders and output shrinking at the steepest pace since at least early 2005 factories cut jobs at the fastest rate in the survey’s history, signaling a high chance of recession.

Capital Economics’ Holmes said while South Korea and Taiwan held up better than other Asian peers, thanks mostly to effective government policies to contain the virus, conditions have nonetheless worsened.

Official data released last week showed the coronavirus sent South Korean exports plunging in April at their sharpest pace since the global financial crisis.

Exports dived 24.3% year-on-year in April, Trade Ministry data showed on Friday, the worst contraction since May 2009 but slightly slower than a 25.4% fall tipped in a Reuters survey. It slid 0.7% in the previous month.

The average exports per working day, excluding the calendar effect, however, tumbled 17.4%, far worse than a 6.9% fall seen in March.

South Korea is considered a bellwether for world trade and is the first among major exporting economies to release data on shipments.