SUMMARY
- Asian manufacturing takes a hit in July as new orders both domestic and global slump.
- Economists warn of a subdued factory activity in the coming months owing to dwindling new orders, grim employment outlook, and swelling inventory levels.
- The slowdown is easing production costs, indicating potential alleviation of inflationary pressures and the possibility of relaxed monetary policies in some emerging Asian economies.
Asia's factory machinery witnessed a period of hibernation as the dawn of the third quarter in July saw an unexpected dip in both local and international orders. This slowdown emphasizes the continual tepid surge of the worldwide economy.
Private surveys that surfaced on Tuesday revealed a downtrend in manufacturing activities across major Asian economies. Out of nine, six hinted towards a contraction in July, with China surprisingly diving into a deflationary zone for the first time in a quarter.
Not just China, but Japan, South Korea, Malaysia, Taiwan, and Vietnam too echoed a similar contraction in their manufacturing spaces. India, Indonesia, and the Philippines, however, brought a whiff of positivity, signaling an expansion in their manufacturing sectors.
"Last month's manufacturing numbers across the majority of Emerging Asia stuck to the contraction theme. The underlying trends also predict looming gloom," noted Shivaan Tandon, a proficient economist at Capital Economics.
He further warned, "With the dwindling new orders, bleak job outlook, and excessive stockpiles, expect a subdued factory activity in upcoming months. External demand will likely pose challenges to growth in the latter half of 2023."
The feeble demand has indirectly contributed to the cut in production costs, potentially easing inflationary tensions. This may eventually pave the way for relaxed monetary policies in some emerging Asian markets. Amongst all, Taiwan's manufacturing purchasing managers’ index (PMI) reading took the worst hit, sliding to 44.1 in July from 44.8 in June, marking the steepest fall since November 2022.
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