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Demand for technology prompted a revival of factories in Asia in February

TOKYO: Strong demand for tech goods spurred growth at Asia’s factories in February, but the slowdown in China highlighted the challenges facing the region as it seeks a sustainable recovery from the devastating blow of the Covid-19 pandemic.

The global launch of the vaccine and increased demand have provided optimism for a large number of companies that have suffered for months from the cash flow crunch and declining profits.

In Japan, manufacturing activity expanded at the fastest pace in more than two years while South Korea’s exports rose for the fourth consecutive month in February, indicating that the region’s export-dependent economies were benefiting from strong global trade.

On the other hand, factory activity in China grew at the slowest pace in nine months in February, affected by a domestic flare-up of Covid-19 and weak demand from countries subject to renewed lockdown measures.

“Overall, the weaker pace of activity in (Chinese) manufacturing data is likely to be temporary, and we expect growth momentum to return again on the back of expanding domestic demand recovery and rebounding global demand,” Saeed Irene Chen, HSBC economist.

“However, while it recovers, household consumption has not yet fully reached pre-epidemic growth levels due to continued labor market pressure.”

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

As the global recovery continues in the early days, analysts say the outlook has been brighter as companies increase production to restock stocks in hopes that a vaccine launch will bring economic activity back to normal.

“The recovery in demand for durable goods continues, creating a positive cycle for manufacturers in Asia,” said Shigito Nagai, Chief Economist of Japan at Oxford Economics.

As the vaccine launch mitigates uncertainty about the outlook, capital spending will gradually rise. This will benefit Japan, which has strong capital goods exports.

The Caixin / Markit Chinese Manufacturing Purchasing Managers’ Index (PMI) fell to 50.9 in February, the lowest since last May but still above the 50 mark that separates growth from contraction.

It was in line with the official manufacturing PMI that showed factory activity in the world’s second largest economy expanded in February at the weakest pace since May of last year.

Activity in other Asian giants has remained fast.

Monday’s data showed that au Jibun Bank Japan’s final manufacturing PMI jumped to 51.4 in February from the previous month’s reading of 49.8, marking the fastest expansion since December 2018.

In South Korea, the leading regional export, shipments jumped 9.5% in February compared to the previous year for the fourth consecutive month of increase as sales of memory chips and cars continued to grow.

Factory activity in India expanded for the seventh month in a row in February due to strong demand and increased production, although a sharp rise in input costs could affect corporate profits in the future.

The Philippines, Indonesia and Vietnam also saw an expansion of industrial activity in February, a sign that the region was gradually recovering from the pandemic’s first blow.

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