Asia’s Manufacturing Landscape Amidst China’s Fragile Economic Recovery

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Asia’s manufacturers are facing worsening pressure in October as factory activity in China continues to decline, affecting recovery prospects for major exporters. Purchasing managers’ indexes for China, Japan, and South Korea show activity shrinking, while Vietnam and Malaysia also face the fallout from a Chinese slowdown.

China’s Caixin/S&P Global manufacturing PMI fell to 49.5 in October from 50.6 in September, falling below the 50.0 point threshold that separates growth from contraction. This echoes a downbeat official PMI reading on Tuesday, which also showed an unexpected contraction in activity, casting doubt over recent hopes of a recovery in the world’s second-largest economy.

China’s slowdown is affecting countries like Japan and South Korea, where manufacturers heavily rely on its demand. Japan’s factory activity decreased for a fifth consecutive month in October, following a slower than expected September output. Japanese machinery makers like Fanuc and Murata Manufacturing reported weak six-month earnings due to sluggish Chinese demand.

South Korea’s factory activity fell for the 16th consecutive month, while PMIs from Taiwan, Vietnam, and Malaysia also showed declines. India’s factory activity growth also slowed for a second consecutive month in October due to softer demand and rising raw material costs.

The October PMIs for emerging Asia have dropped further into contractionary territory, with a bleak outlook for manufacturing due to elevated inventory levels and weaker foreign demand. The International Monetary Fund (IMF) has warned that China’s weak recovery and the risk of a prolonged property crisis could further erode Asia’s economic prospects. The IMF cut next year’s growth estimate for Asia to 4.2% from 4.4% in April and 4.6% forecast for this year.