Asia's factory activity expands in June amid global economic momentum

Factory activity in Asia: Factory activity in Asia expanded in June, driven by solid global economic momentum and improving prospects for semiconductor output, according to surveys released on Monday. This growth offers policymakers some hope that the region can withstand the impact of weak Chinese demand.

However, cost pressures are affecting manufacturers in countries like Japan, where the weak yen is increasing the prices of fuel and raw material imports.

China's Caixin/S&P Global manufacturing purchasing managers' index (PMI) rose to 51.8 in June from 51.7 in May, according to a private survey released on Monday. This reading, which remains above the 50.0 break-even line that separates growth from contraction, marks the fastest pace in more than three years and exceeds market forecasts of 51.2.

The private-sector reading follows official PMI data released on Sunday, which showed China's manufacturing activity fell for a second month in June and services activity slid to a five-month low. The surveys indicate that Chinese firms are increasing production despite weak domestic demand, which Beijing has been unable to boost with a rescue package for the struggling property sector.

Elsewhere in Asia, South Korea's factory activity growth accelerated in June to its fastest pace in 26 months, driven by surging new orders, according to a private survey released on Monday. Factory activity also expanded at a faster pace in June compared to May in Vietnam and Taiwan.

"Another strong month of data provides further evidence that global industrial activity and trade are picking up," said Joe Hayes, principal economist at S&P Global Market Intelligence, regarding South Korea's factory activity. "Viewed as a bellwether for exports due to its integration in supply chains for key intermediate goods like batteries and semiconductors, South Korean manufacturing output and orders often provide leading signals for broader trends."

Japan's factory activity expanded in June, though at a slower pace than in May, as companies grappled with rising costs due to the weak yen. The final au Jibun Bank Japan manufacturing PMI stood at 50.0, right on the break-even line, following a brief improvement to 50.4 in May. An index gauging Japanese firms' future output expectations rose to a six-month high, thanks to a better medium-term outlook for the car and chip sectors, according to the PMI survey.

India's manufacturing sector rebounded last month as output increased on robust demand, leading to the fastest rate of hiring in over 19 years, according to a survey.

The International Monetary Fund (IMF) expects Asia's economies to achieve a soft landing as moderating inflation creates room for central banks to ease monetary policies and support growth. The IMF projects growth in the region to slow from 5 per cent in 2023 to 4.5 per cent this year and 4.3 per cent in 2025.

(With Reuters inputs)