Manufacturers in Asia have become less optimistic about their output in the coming months as escalating trade tensions cast doubt over the regional economy.
The Nikkei Purchasing Managers› Index for March showed a drop in most economies surveyed. Manufacturers continued to face higher costs, but the latest PMI surveys also showed inflation starting to ease in some markets, Nikkei reported.
The surveys also revealed that manufacturers› businesses expanded in seven of the eleven economies monitored by Nikkei. This compares with February›s expansion in nine economies. South Korean and Thai businesses, however, contracted, falling below the 50 mark on the index that indicates an unchanged level.
Overall, factory activities slowed or expanded at a slower pace in March from the previous month, with ASEAN PMI dropping to 50.1 from 50.7; India›s to 51.0 from 52.1; Taiwan›s to 55.3 from 56.0, South Korea›s to 49.1 from 50.3 and Japan›s to 53.1 from 54.1.
One remarkable finding was a decline in the Future Output Index that shows manufacturers› confidence in the year ahead. The survey asked whether they expected overall volume of output to be higher, the same or lower than the current in 12 months› time.
The Future Output Index for ASEAN—that covers Indonesia, Thailand, Vietnam, Malaysia, Singapore, the Philippines and Myanmar—hit a record low of 65.6, down from February›s 67.6. The index also dropped to 58.0 from 59.5 in Japan, to 58.1 from 59.6 in South Korea, and to 63.5 from 65.6 in Taiwan.
One possible factor affecting manufacturers› outlook is the trend of protectionism that seems to be spreading in the region amid global trade tensions. The administration of US President Donald Trump said early March that it would impose import tariffs on steel and aluminum, triggering the likelihood of a trade war with China, which earlier this month announced its own duty hikes. As many Asian manufacturers depend on trade, the impact could be huge if the situation worsens.
For the Association of Southeast Asian Nations, the index for input costs rose 0.2 points to 57.9, the second consecutive rise and the highest since April 2017. In Taiwan, the index rose to 72.9 from February›s 71.7, the fastest pace since January 2017. According to the survey, 51% of the monitored companies in Taiwan noted higher input costs in March.
