Outlook brightens for Southeast Asia factories as virus eases

Outlook brightens for Southeast Asia factories as virus eases

A worker makes tofu at a factory in Surabaya on Feb 21, 2022, amid a slowdown of production in the country due to soaring prices of soybean in world markets. (AFP file photo)

Manufacturing activity kicked into a higher gear in Southeast Asia as nations overcame Omicron-led virus outbreaks while factories in the euro area saw demand increase.

Thailand’s manufacturing purchasing managers’ index rose to a record in February, while the Philippines rebounded to its highest in three years, according to IHS Markit. Vietnam and Malaysia also improved.

Indonesia saw the biggest slump among its neighbours due to a Covid-19 resurgence, but its purchasing managers’ index (PMI) remained above the 50 mark that separates expansion from contraction.

In the euro area, the gauge fell slightly but also remained in expansionary territory. While demand for goods in the region is trending higher and sales conditions strengthened, inflation remains a problem.

The war in Ukraine, “which also carries the risk of dampening growth, adds fresh fuel to inflation risks, and we’ve seen Brent crude already moving higher in response,” IHS economist Joe Hayes said in a statement.

“Manufacturing conditions in Asean improved strongly in February, with the PMI remaining among the highest on record as output rose solidly again amid the fastest upturn in new work since last October,” said Lewis Cooper, IHS Markit economist.

China’s manufacturing activity improved marginally in February, beating expectations of a slowdown due to holiday disruptions. Official PMI rose to 50.2, while the private Caixin gauge climbed to 50.4.

The rest of North Asia, meanwhile, continued to grapple with material shortages, forcing factories to reduce production. Taiwan PMI moderated to 54.3 in February from 55.1 the month prior, while Japan eased slightly to 52.7 from 52.9.

Asia’s manufacturing sector is navigating a complicated recovery, juggling rising costs and snarled supply chains while trying to meet a rebound in consumer demand as virus outbreaks wane.

The latest PMI readings all remain in expansion territory across Asia, boding well as the region braces for potential fallout from the invasion of Ukraine and tighter sanctions on Russia.

The geopolitical tensions have spurred commodity prices even higher, with oil hitting multi-year highs, and threaten to worsen inflation in Asia.