Tech demand drove Asia’s factory revival from pandemic in February

Solid demand for technology products drove extended growth in Asia’s factories in February, but a slowdown in China underscored the challenges facing the region as it seeks a sustainable recovery from the Covid-19 pandemic.

The global vaccine rollouts and pick-up in demand provided optimism for a vast number of businesses that grappled for months with a cash-flow crunch and falling profits.

In Japan, manufacturing activity expanded at the fastest pace in over two years while South Korea’s exports rose for a fourth straight month in February, suggesting the region’s biggest export-reliant economies were benefiting from robust global trade.

However, China’s factory activity grew at its slowest pace in nine months in February, hit by a domestic flare-up of Covid-19 and soft demand from countries under renewed lock-down measures.

“The softer pace of activity in today’s Chinese manufacturing is likely to be temporary, and we expect the growth momentum to pick back up on the back of a broadening out of the domestic demand recovery and a pickup in global demand,” said Erin Xin, an economist at HSBC.

“However, household consumption, while recovering, has not yet fully reached pre-pandemic levels of growth due to continued labour market pressure.”

China was the first major economy to lead the recovery from Covid-19, so any signs of prolonged cooling in Asia’s engine of growth will likely be a cause for concern.

With the global rebound still in its early days, however, analysts say the outlook is brightening as companies increase output to restock inventory on hopes vaccine rollouts will normalise economic activity.

“The recovery in durable-goods demand is continuing, which is creating a positive cycle for manufacturers in Asia,” said Shigeto Nagai, head of Japan economics as Oxford Economics.

“As vaccine rollouts ease uncertainties over the outlook, capital expenditure will gradually pick up. That will benefit Japan, which is strong in exports of capital goods,” he said.

Activity in other Asian giants remained brisk, reports Reuters.

In South Korea, a regional exports bellwether, shipments jumped 9.5% in February from a year earlier for its fourth straight month of increase on continued growth in memory chip and car sales.

India’s factory activity expanded for the seventh straight month in February on strong demand and increased output, though a spike in input costs could weigh on corporate profits ahead.

The Philippines, Indonesia and Vietnam also saw manufacturing activity expand in February, a sign the region was gradually recovering from the initial hit of the pandemic.