Manufacturing Contraction Continues Across Northern Asia

The S&P manufacturing PMIs in north Asia are signalling contracting activity with China and Taiwan seeing the situation deteriorate further but South Korea improving slightly. With the global growth outlook highly uncertain, this lacklustre industrial picture is unlikely to change soon.

• The manufacturing PMI in South Korea rose to 48.4 from 48.1, but is still signalling contracting industrial activity. But new orders fell at a sharper rate than in April driven by weak demand. Foreign orders were not as soft as the prior month. Despite the weakness, employment rose at its strongest pace in over a year. The 1-year outlook was its most optimistic for 10-months, as global headwinds are expected to ease.
• Cost pressures in Korea rose at their slowest since September 2020 and as a result output inflation fell for the first time in 32 months, as firms used price to attract sales. This is good news for the Bank of Korea.
• Taiwan saw the decline in manufacturing deteriorate sharply in May. The PMI fell to 44.3 from 47.1, as output and new orders fell sharply. Businesses are reporting softer demand both domestically and from overseas (especially China, Europe & US), and so also reduced jobs at the fastest pace in more than 3 years. Despite this bleak picture, the 12-month outlook was mildly optimistic for the 2^nd consecutive month.
• Input prices in Taiwan fell for the first time in 6 months due to weak demand and these savings were often passed on to customers to boost demand.