Goods Not Selling, Costs Rising... Asia Faces Economic Chill

China Manufacturing PMI Drops to 49.5 Indicating 'Contraction'
Manufacturing Outlook Weakens in Korea, Japan, and Southeast Asia

Asia's manufacturing sector is rapidly freezing up as sluggish demand due to the global economic slowdown coincides with concerns over rising raw material prices caused by armed conflicts in the Middle East.

According to data compiled on the 1st from S&P Global, Japan's Shibun Bank, and China's Caixin, the manufacturing Purchasing Managers' Index (PMI) for major Asian regions including South Korea, China, Japan, Vietnam, and Thailand was below 50 in October this year, indicating a contraction phase. The manufacturing PMI, surveyed from purchasing and HR managers of companies, is a leading indicator for future economic conditions. A PMI above 50 indicates economic expansion, while below 50 indicates contraction.

According to Chinese economic media Caixin, China's manufacturing PMI for October was recorded at 49.5. This not only fell short of market expectations (50.8) but also declined from the previous month (50.6), signaling a return to a contraction phase. This means that the outlook for China's manufacturing sector is pessimistic. Unlike the official PMI released by China's National Bureau of Statistics, the Caixin PMI includes small and medium-sized enterprises and export companies, and is regarded as a more precise reflection of China's economic trends. The official October manufacturing PMI announced by Chinese authorities the previous day also showed a contraction phase at 49.5, down 0.7 points from the previous month, heightening concerns about the Chinese economy.

Manufacturing PMI Slowdown in Major Asian Countries

The bleak economic outlook is not only observed in China. South Korea and Japan's October PMIs remained in contraction at 49.8 and 48.7 respectively, similar to the previous month. Taiwan also showed a contraction phase at 47.6.

The manufacturing sector in Southeast Asia, a global production base alternative to China, also slowed down. Vietnam's PMI for October was 49.6, and Thailand's was 47.5 during the same period, showing little sign of economic improvement.

This overall economic slowdown across Asia is analyzed to stem from increased raw material cost burdens due to rising oil prices, and a decrease in new orders and production caused by the global economic slowdown. In particular, production expansion is difficult due to the economic slowdown in Europe, a major demand market for Asian manufacturers.

The recent war between Israel and the Palestinian armed faction Hamas could further dampen the already frozen Asian manufacturing sector. If the armed conflict between the two sides spreads throughout the Middle East, raw material prices, including recently stabilized international oil prices, may surge again, increasing cost burdens on the manufacturing industry. Rising funding costs due to the central banks' prolonged high interest rate policy also pose a burden on the manufacturing sector.

Usama Bhatti, an economist at S&P Global Market Intelligence, analyzed, "High raw material prices, especially rising oil prices, and exchange rate instability caused by the depreciation of domestic currencies have increased the costs companies must bear."

The slowdown in the economic recovery and contraction of the manufacturing sector in China, the world's second-largest economy, is expected to have a chain reaction of negative impacts on countries highly dependent on China. Bloomberg economists Chang Suwa and Eric Zhu said, "The decline in China's October Caixin manufacturing PMI signals that growth momentum is slowing despite the Chinese government's active policy support," adding, "This further raises our concerns about the outlook for export-oriented small and medium-sized enterprises and the strength and durability of the (Chinese economy) recovery."

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