Global Factories Hit the Brakes Amid Delta Variant Spread and Worsening Supply Shortages

US ISM Manufacturing PMI Continues to Slow
Private Employment Also Falls Short of Market Expectations
Similar Situations in Europe, China, and Asia
Production Hub Status in Southeast Asia at Risk
Manufacturing Slowdown Expected to Persist into Second Half

[Image source=Yonhap News]

[Asia Economy Reporter Kim Suhwan] The spread of the COVID-19 Delta variant and the worsening global supply shortage are bringing manufacturing factories worldwide to a halt. The Purchasing Managers' Index (PMI), a leading indicator of manufacturing activity in various countries, showed a downward trend in most major countries in August. While the global economy showed signs of recovery in the first half of the year due to expanded COVID-19 vaccinations, there is a growing consensus that growth will slow in the second half.

On the 1st (local time), IHS Markit announced that the final PMI for the U.S. in August (seasonally adjusted) was 61.1, down from 63.4 recorded in July.

The Institute for Supply Management (ISM) reported the August manufacturing PMI at 59.9. This figure exceeded the expert forecast of 58.6 compiled by The Wall Street Journal (WSJ) and the 59.5 recorded in July. However, the ISM manufacturing PMI has shown a continuous weakening trend since reaching a 40-year high in March.

The U.S. private employment announced on the 1st increased by 374,000, far below the market expectation of 600,000, leading to assessments that the U.S. economy has generally entered a downward phase.

PMI Declines in Europe, China, and Asia

The situation in other countries is similar. The Eurozone PMI for August, announced by IHS Markit, was confirmed at 62.8, lower than 61.4 in the previous month. IHS Markit described this as "a clear signal that supply chain problems are worsening."

China's August PMI, announced by Caixin the previous day, recorded 49.2, down from 50.3 in July. This is the first time since April last year, during the early stages of the COVID-19 pandemic, that the PMI fell below 50.

A PMI above 50 indicates economic expansion, while below 50 indicates contraction. This suggests that China's manufacturing sector has entered a downturn phase again.

Jeffrey Halley, an analyst at OANDA, said, "The decline in China's PMI reflects the current global experience of supply chain issues and the resulting economic slowdown."

Japan's August PMI also fell by 0.3 points from the previous month (53.0) to 52.7. In Taiwan, the August PMI was 58.5, down 1.2 points from 59.7 in the previous month.

The manufacturing sector in Southeast Asia, where factory shutdowns are increasing rapidly due to the spread of the Delta variant, is also suffering significant damage.

According to IHS Markit, Vietnam's August PMI was 40.2, plunging nearly 5 points from 45.1 in the previous month. Standard Chartered lowered Vietnam's economic growth forecast for this year from 6.5% to 4.7% the day before. Earlier this year, a high growth rate of 7.8% was predicted, but the recent worsening of the COVID-19 situation has negatively impacted economic outlooks.

Margoto Saito, an economist at NLI Research, warned, "If strict lockdown measures continue in Southeast Asia, this region could lose its status as a global production hub." Economist Chang Shu told Bloomberg News in an interview, "The August PMI in the Asia region shows that the Delta variant spreading in the area is adversely affecting the overall economy."

[Image source=EPA Yonhap News]

Logistics Crisis and Semiconductor Shortage to Blame... "Economic Slowdown Likely to Continue in the Second Half of This Year"

The signals pointing to a slowdown in manufacturing activity in most countries are attributed to a global logistics crisis and shortages of raw materials and semiconductors, which are driving up prices.

Chris Williamson, chief economist at IHS Markit, said, "These supply shortages are the cause of the largest gap between manufacturing orders and production in 24 years, recorded in July."

Experts predict that the manufacturing slowdown caused by this global supply shortage is likely to continue into the second half of this year.

Oxford Economics analyzed, "Although the PMI remains at a high level, supply chain problems and the resulting pressure on producer prices may last longer than expected." UBS Group emphasized, "While the supply shortage may not worsen further, it will take more time for indicators to improve. In particular, the manufacturing slowdown in the Asia region is a risk scenario."

This content was produced with the assistance of AI translation services.