Written by Laika Kihara
TOKYO (Reuters) – Factory activity in Asia expanded in June thanks to strong momentum in the global economy and improving prospects for semiconductor production, surveys showed on Monday, giving policymakers some hope that the region can weather the blow from weak Chinese demand.
But cost pressures have hit manufacturers in countries such as Japan, where a weaker yen has increased the prices companies pay for imported fuel and raw materials.
China’s Caixin/S&P Global Manufacturing Purchasing Managers’ Index (PMI) rose to 51.8 in June from 51.7 in May, a private survey showed on Monday, staying above the 50.0 breakeven line that separates growth from contraction. It was the fastest pace in more than three years and beat market expectations of 51.2.
The private sector reading came after official PMI data released on Sunday, which showed that manufacturing activity in China fell for the second month in a row in June, and services activity fell to the lowest level in five months.
Surveys show Chinese companies are ramping up production despite weak domestic demand, which Beijing has failed to reverse with a bailout package for the struggling property sector.
In a sign that the Asian region is benefiting from strong global demand, a special survey showed on Monday that growth in factory activity in South Korea accelerated in June to the fastest pace in 26 months thanks to a rise in new orders.
Surveys showed that factory activity also expanded faster in June than in May in Vietnam and Taiwan.
“Another strong month of data provides further evidence that global manufacturing activity and trade are recovering,” said Joe Hayes, chief economist at S&P Global Market Intelligence, commenting on factory activity in South Korea.
“Seen as a bellwether for exports due to its integration into supply chains for key intermediate goods such as batteries and semiconductors, South Korea’s manufacturing output and orders often provide leading signals for broader trends.”
Factory activity in Japan expanded in June, but at a slower pace than in May, as companies struggled with higher costs due to the weak yen.
A survey showed that the final Japan Manufacturing Purchasing Managers’ Index (PMI) issued by OJibun Bank came in at 50.0 points on the break-even line that separates growth from contraction, after a brief improvement to 50.4 points in May.
An index measuring future production expectations of Japanese companies rose to a six-month high thanks to better medium-term outlook for the auto and chip sectors, the PMI survey showed.
The International Monetary Fund expects Asia’s economies to head toward a soft decline, with central banks allowing room to ease monetary policies to support growth thanks to moderate inflation. The Fund expects growth in the region to slow from 5% in 2023 to 4.5% this year and 4.3% in 2025.