Asian factories take omicron risks in stride, for now

The rising rate of global infections have
raised eyebrows among policymakers, with outbreaks in China forcing some firms
to suspend production and threatening to disrupt output for memory chip giants
like Samsung Electronics.

For now, however, the direct hit from Omicron
on output appeared subdued, according to surveys released on Monday and

China’s factory activity grew at its fastest
pace in six months in December, the Caixin/Markit Manufacturing Purchasing
Managers’ Index (PMI) showed earlier in the day.

The findings from the private survey, which
focuses more on small firms in coastal regions, tally with those in China’s
official PMI that pointed to an uptick in factory activity.

Other parts of Asia also fared well with
factory activity expanding in countries ranging from Vietnam, Malaysia and the

“Manufacturing PMIs and timely trade data
reveal that Asia’s export-focussed industry gained momentum at the turn of the
year,” said Alex Holmes, emerging Asia economist at Capital Economics.

“While the Omicron variant presents a key
threat to the outlook, it is unlikely to cause nearly as much disruption to
industry as Delta did in Q3,” he said.

In Japan, the world’s third-biggest economy,
manufacturing activity in December grew for an 11th straight month. And
bellwether exporter South Korea saw its main factories gauge enjoy the fastest
pace of expansion in three months, the surveys showed.

“We expect Asia’s exports and capex
upswing to be sustained by continued global recovery, and Asia’s manufacturing
PMIs will remain moderately strong over the coming months,” analysts at
Morgan Stanley wrote in a research note.

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Some economists, however, warned that supply
shortages and rising input costs remain risks particularly for export-reliant
countries like South Korea.

“Given South Korea’s prominence in the
automotive and electronics industries, substantial improvements in global
supply chains will be required before we see a meaningful acceleration in
manufacturing growth,” said Joe Hayes, senior economist at IHS Markit.

Japan’s PMI stood at 54.3 in December,
remaining above the 50-mark threshold that indicates expansion in activity but
lower than November’s 54.5 as new order growth softened.

South Korea’s PMI rose to 51.9 from 50.9 in
November to mark the 15th consecutive month of expansion, as rising domestic
demand offset sluggish overseas sales.

India’s manufacturing activity continued to
expand in December though at a slower pace than in November, as elevated price
pressures remained a concern.

“The Omicron variant poses near-term
growth risks by delaying the consumption recovery, but higher vaccination rates
in Asia could help limit the damage to growth as compared to the Delta
wave,” Morgan Stanley analysts said.

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