Manufacturing activity across Asia saw notable growth in May, driven by a surge in global demand. This trend, highlighted in private surveys released on Monday, suggests a sustained economic recovery in the region, with China showing early signs of rebounding.
Japan's manufacturing sector expanded for the first time in a year, while South Korea experienced its fastest growth in two years. This uptick was largely fueled by increased activity in the automobile and semiconductor sectors. China's Caixin survey reported factory activity rising at its quickest pace in almost two years, thanks to robust production and new orders. These indicators suggest a broader recovery in Asia's manufacturing sector, which could help cushion the impact of market volatility caused by uncertainties in U.S. monetary policy.
However, some analysts remain cautious about the future. Toru Nishihama, chief emerging market economist at Japan's Dai-ichi Life Research Institute, stated, "The improvement in factory activity might be driven by expectations of increased production in China. However, domestic demand in China isn't showing significant improvement. It's too soon to determine if this growth will be sustainable, especially with uncertainties in major markets like China and the United States."
Japan's final au Jibun Bank manufacturing purchasing managers' index (PMI) rose to 50.4 in May from 49.6 in April, marking the first rise above the 50.0 threshold—indicating growth rather than contraction—since May 2023. Similarly, South Korea's PMI climbed to 51.6, the highest since May 2022, following two months of contraction, according to an S&P Global survey.
Adding to the positive outlook, China's Caixin/S&P Global manufacturing PMI increased to 51.7 in May from 51.4 in April, exceeding analysts' expectations of 51.5 and marking the fastest growth since June 2022. This is in contrast to an official survey released on Friday that showed a decline in manufacturing activity, reflecting a mixed picture of China's vast industrial sector.
Other Asian countries also saw manufacturing growth in May, including Taiwan, Indonesia, Vietnam, and the Philippines, according to private sector surveys. In India, however, manufacturing growth slowed to a three-month low due to a heatwave that led some firms to reduce working hours. Despite this, investors remain optimistic that manufacturing will benefit from increased public spending, especially as exit polls indicate a strong mandate and likely third term for Prime Minister Narendra Modi. Following these developments, Indian shares hit record highs, the rupee strengthened, and bond yields decreased.
The broad expansion in manufacturing activity across Asia highlights the region's resilience and potential for recovery amid global economic uncertainties.