Asia's factory activity faced a significant downturn in January, primarily driven by subdued Chinese demand and tariff threats from U.S. President Donald Trump. Japan experienced the most pronounced decline, with its factory activity plummeting at the fastest rate in ten months. Business confidence in Japan also dipped to its lowest level in over two years. Meanwhile, China's factory growth slowed, with staffing levels dropping at the quickest pace observed in nearly five years. South Korea's economy exhibited minimal growth in the fourth quarter of 2024 due to an ongoing political crisis, although its Purchasing Managers' Index (PMI) showed a slight improvement in January.
China witnessed a modest slowdown in its factory activity, with the Caixin/S&P Global manufacturing PMI slipping to 50.1 in January from 50.5 the previous month. This slowdown, coupled with sharp job losses among younger workers, has raised concerns among Asian manufacturers about China's economic outlook. In Japan, the final au Jibun Bank PMI fell to 48.7 in January, marking a decline from December's 49.6. The Philippines, Taiwan, and Vietnam also experienced decreases in their PMIs, indicating a broader regional impact.
South Korea's PMI managed a recovery to 50.3 in January, up from December's 49.0, despite the country's political challenges. However, the country's economic growth remained sluggish, reflecting broader uncertainties across Asia. The Philippines saw its PMI drop to 52.3 from December's 54.3, while Taiwan's PMI declined to 51.1 from 52.7. Vietnam's manufacturing sector contracted further, with its PMI falling to 48.9 from 49.8.
President Trump's sweeping tariffs on imports from Mexico, Canada, and China have sent shockwaves through global markets, exacerbating existing uncertainties for Asian manufacturers.
"Trump tariffs could also accelerate US inflation and keep the dollar strong, which would put downward pressure on emerging Asian currencies. When global trade is shrinking, that won't bring much benefits to Asian manufacturers," said Toru Nishihama, chief emerging market economist at Dai-ichi Life Research Institute.
Asian companies remain cautious about Trump's tariff threats and are wary of China's economic prospects amid rising unemployment rates.
"There's caution among Asian companies over Trump's tariff threats. Manufacturers also aren't confident on the outlook for China, where consumption is unlikely to increase much due to rising job losses among the younger generation," added Nishihama.
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