Coronavirus outbreak

Factories in Asia take beating in February

Sharp contraction in Chinese activity adds to fears of virus crisis setting off global recession

A worker helping to manufacture bicycle steel rims in a factory in Hangzhou in China's Zhejiang province. The slump in factory activity in China and other Asian economies has bolstered speculation that global policymakers will launch a coordinated re
A worker helping to manufacture bicycle steel rims in a factory in Hangzhou in China's Zhejiang province. The slump in factory activity in China and other Asian economies has bolstered speculation that global policymakers will launch a coordinated response to contain damage to the world economy. PHOTO: REUTERS

TOKYO • Asia's factories took a heavy hit last month from the coronavirus outbreak, with activity in China shrinking at a record pace, business surveys showed yesterday, adding to fears that the crisis risks triggering a global recession.

China's factory activity suffered the sharpest contraction on record in February, the Caixin/Markit Manufacturing Purchasing Managers' Index (PMI) showed, underlining the crippling effects of tough travel curbs and public health measures taken to contain the outbreak. That followed the Chinese government's similarly dire PMI release at the weekend, which also showed a record pace of decline.

The slump in the world's second-largest economy dealt a severe blow to factories across Asia, including those in Japan, South Korea and Taiwan, offering the clearest evidence yet of the epidemic's damaging effects on global growth and businesses.

"The slump in manufacturing activity looks to have had a significant impact on trade," Capital Economics wrote in a research note on the Caixin PMI. "The PMIs also point to a major hit to employment, the effects of which will take longer to reverse. And with the jump in virus cases overseas, there is a growing risk of a protracted downturn in foreign demand."

But the manufacturing downturn in the euro zone eased last month, in an encouraging sign for the European Central Bank as it tries to stoke growth.

IHS Markit's Manufacturing PMI rose to 49.2 in February from January's 47.9, pipping a preliminary estimate of 49.1 and chalking up its highest reading in a year.

"Despite widespread reports from companies that the coronavirus outbreak disrupted supply chains and hit foreign sales, February saw encouraging signs that the euro zone's manufacturing downturn is easing," said Mr Chris Williamson, chief business economist at IHS Markit.

Japan's PMI showed its factory activity was hit by the sharpest contraction in nearly four years last month, reinforcing expectations that the economy may have slipped into recession.

Separate data showed Japanese firms cut spending on plant and equipment in the quarter to December, casting doubt on the Bank of Japan's (BOJ) view that robust domestic demand will make up for some of the weakness in exports.

South Korea's factory activity also shrank faster last month - as export orders contracted at the quickest pace in over six years - in a shattering blow to production.

Activity in Vietnam and Taiwan, two key economies in the global technology supply chain, slipped into contraction from growth the month earlier.

Among Asian economies less reliant on global trade, growth in India's factory sector eased slightly from a near eight-year high in January while Indonesia's factory sector returned to growth.

The dismal readings have bolstered speculation that global policymakers will launch a coordinated response to contain damage to the world economy. Those expectations helped stocks recoup some of their heavy losses yesterday.

BOJ governor Haruhiko Kuroda yesterday joined his United States counterpart Jerome Powell in pledging to take necessary steps to stabilise markets jolted by the virus.

In Australia, financial regulators held an emergency meeting to discuss the economic impact of the outbreak.

Meanwhile, China has injected large amounts of liquidity to shore up market confidence. The country's central bank - the People's Bank of China - has also told banks to help firms struggling with repayments by extending loans and not penalising late payments.

"A rate cut helps only a little bit, by easing debt service costs. But it does little, if anything, to solve the bigger problems of cash flow interruption," said Mr Rob Carnell, chief economist and head of research for Asia-Pacific at ING in Singapore.

Singapore's PMI will be out today.

REUTERS

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A version of this article appeared in the print edition of The Straits Times on March 03, 2020, with the headline Factories in Asia take beating in February. Subscribe