Activity in Asian Manufacturing Hubs Slowed Down in March 2022


The recent turmoil between Russia and Ukraine and renewed surges in COVID-19 infections in many countries impacted manufacturing activity in Asia tremendously in March 2022. Overall export demand in all major economies saw a decline in the recent month. A major impact on these economies came through rising inputs and raw material prices, particularly energy and food prices and rising supply challenges. The Purchasing Managers Index (PMI) for Asia shows that there was month-over-month growth in output for March 2022 in only three sectors out of 18. Also, new business orders in March 2022 increased in only four out of the 18 sectors.1

Outlook in China

In China, the situation was exacerbated further by renewed surge in COVID-19 infections, which hampered factory and port operations. There is now an extended lockdown in Shanghai, leading to labour issues. Volume of goods has dropped significantly due to shortage of labour in factories and warehouses, and trucking is limited. The overall sentiment for manufacturing activity in China was contractionary in March 2022. New business orders in China fell to the lowest since February 2020, and mobility issues restricted supplies. Business confidence for March 2022 declined to a three-month low due to a combined impact of COVID-19 infections and the tensions between Russia and Ukraine.

The headline PMI for manufacturing in China fell from 50.4 in February 2022 to 48.1 in March 2022. This is the lowest level for manufacturing sentiment since the lows of the pandemic in March 2020, and the fall was the steepest in the last 25 months. Once again, the zero-COVID policy in China has curtailed activity in major manufacturing hubs in China even when the infection rate is miniscule compared globally.2

Companies in China reported both domestic and foreign orders dropped significantly and measures to curb COVID-19 infections was perhaps a major dampener on economic activity. Overall greater uncertainty of business and lower sales also led to lower purchasing activity by companies.

The growth in factory employment was stalled due to the disturbances in activity. Recruitment activity was in positive territory for the first time since July 2021, but many factories were reported to have stopped hiring. However, even with the current levels of uncertainty, the outlook for business was positive. Manufacturers were optimistic about the pandemic coming under control soon, however the degree of optimism was only limited and weakening. Overall, demand and supply both remained muted due to the dual impact of war and COVID-19, and outlook for future business has been weakening, albeit still positive.

Outlook in Vietnam

In Vietnam as well, COVID-19 infections have been on the rise, leading to shortage of labour in the manufacturing sector. A significant drop in production and increasing work backlogs was the most immediate impact due to labour issues. Vietnam’s manufacturing PMI fell from 54.3 in February 2022 to 51.7 in March 2022. The overall sentiment still reflects optimism and expansion in business activity; however, this was the first slide in the business outlook in the last six months. In addition to the labour issues, input price inflation impacted business activity, however new orders kept flowing in. New business orders were mostly fulfilled by drawing down inventory levels, and there was a decline in inventory of finished goods for the first time in three months.

The rate of inflation for input cost increased rapidly in March 2022, the fastest rate in the last 11 years. The prices of major consumer goods also rose tremendously due to high fuel prices, which might impact labour costs as well. Both raw material and finished goods prices rose at an accelerated pace. The increase in prices of final goods was among the highest in the last ten years. Purchasing activity was still rising in March 2022, but with a slower growth rate.

Several factors such as rising COVID-19 infections and border restrictions with China also stalled the supply of goods or led to longer delivery times. There was further delay in delivery times due to the Russia-Ukraine war, raising supply delays to the greatest since October 2021, when shipping deadlocks were at their peak. Due to a mix of worries related to pandemic and the war, business sentiment dropped to the lowest in six months. However, the outlook for output in the coming year was positive and firms were optimistic about new orders increasing in the coming months.

Outlook in India

In India, business conditions improved in March 2022, but the rate of expansion in activity was slower than the last month and eased to a six-month low. India’s manufacturing PMI fell to 54.0 in March 2022 from 54.9 in February 2022. Production and new orders grew at a slower rate, while inflation also dampened business confidence, which fell to its lowest in the last two years.

Sales continued to rise for goods producers, which provided the momentum in activity. But tremendous rise in prices was reported by producers for all major raw materials, however the rate of increase was slowest in six months. On the other hand, output prices also rose as producers passed on the increased cost to the consumers. The rise was however moderated and was close to its long run average. The overall sentiment for future activity slipped due to inflation concerns and economic uncertainty due to the geopolitical tensions.

On the labour side, total headcount stabilised after continued decline in employment for past few months. CMIE data for March 2022 also reflected a decline in overall unemployment to 7.6 per cent from 8.1 per cent in February 2022.3 In the PMI survey, companies reflected that the current numbers were sufficient to cater to the output requirements. Purchasing of inputs increased in March 2022, but at a weaker pace, while final goods sales were catered to from the existing stock, as production activity was slow.4

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