Asia's factory activity slows on cost pressure from Iran war
The findings highlight the challenge policymakers face in a region that buys about 80% of the oil that is shipped through the Strait of Hormuz, making many countries vulnerable to the hit from the energy shock caused by the war
Highlights:
- Factory activity slows in Indonesia, Vietnam, Taiwan
- Japan's manufacturing activity hit by rising input prices
- South Korea an outlier with activity lifted by chip demand
- Asia's huge energy reliance leaves economies vulnerable
Many Asian economies saw factory activity slow in March, business surveys showed on Wednesday, a sign surging fuel costs and heightening global uncertainty from the Iran war were taking a toll on the region.
The findings highlight the challenge policymakers face in a region that buys about 80% of the oil that is shipped through the Strait of Hormuz, making many countries vulnerable to the hit from the energy shock caused by the war.
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China's manufacturing sector expanded in March for a fourth straight month but saw inflationary pressures and supply chain strains intensify, a private survey showed.
The RatingDog China General Manufacturing Purchasing Managers' Index (PMI), compiled by S&P Global, fell to 50.8 in March from 52.1 in February, missing analysts' forecast of 51.6. The 50-mark separates growth from contraction.
Manufacturing activity in March slowed in economies ranging from Indonesia, Vietnam, Taiwan and the Philippines, other PMIs showed, highlighting the pain the Middle East conflict was already inflicting on businesses.
Japanese factories also took a hit from the souring business mood and cost pressures, which hit a 19-month high.
The final S&P Global Japan Manufacturing PMI fell to 51.6 in March from 53.0 in February. Input prices rose at the fastest rate since August 2024 as the Middle East war drove up energy and raw material prices, adding to cost pressures from a weak yen and labour shortages.
"The war has also fuelled greater uncertainty about the global economic outlook, dampening business confidence and resulting in more cautious hiring and purchasing activity," said Annabel Fiddes, Economics Associate Director at S&P Global Market Intelligence.
Indonesia's PMI fell to 50.1 from 53.8 in February, while that of Vietnam slowed to 51.2 from 54.3 in the previous month, the surveys showed.
South Korea was an outlier with factory activity expanding at the strongest pace in more than four years in March, led by semiconductor demand and new product launches.
Markets have been rattled this month after the Iran war effectively shut the Strait of Hormuz, a chokepoint for about a fifth of global oil and gas flows, driving up crude oil prices and broader inflation.
Increasing demand for the safe-haven dollar has also pushed down emerging Asian currencies, heightening challenges for the region's central banks seeking to shield their economies from the second-order effects of the war.
