Factory activity contracted sharply across most of Asia in March as the new virus pandemic paralyzed economic activity across the globe, with sharp falls in export power-houses Japan and South Korea overshadowing a modest improvement in China.
Manufacturing gauges also tumbled in Indonesia, Vietnam and the Philippines, Purchasing Managers’ Index (PMI) surveys showed on Wednesday, underscoring the widening damage brought by the pandemic that has infected more than 700,000 people, upended supply chains and led to city lockdowns worldwide.
China’s factory activity improved slightly more than expected in March after plunging a month earlier, a private business survey showed, but growth was marginal, highlighting the intense pressure facing businesses as domestic and export demand slumps.
While factories in China gradually restarted operations after lengthy shutdowns and a fall in virus cases allowed the country to start relaxing travel restrictions, activity in South Korea shrank at its fastest pace in 11 years as many of its trading partners imposed dramatic measures to curb the virus’ spread.
“If you look at the Korean numbers, they’re fairly bad ... They’re likely to get worse still because Korea will be dependent on parts from Europe and the United States,” said Rob Carnell, Asia-Pacific chief economist at ING in Singapore.
“(Policymakers) have to accept the inevitable that there is a massive global pandemic here, there is an outbreak in almost every country globally and certainly in our region, which is getting to levels that if they don’t take very dramatic action, it’s going to get much worse,” he said.
Japan’s factory activity contracted at the fastest pace in about a decade in March, adding to views that the world’s third-largest economy is likely already in recession.
A separate “tankan” survey by the Bank of Japan showed on Wednesday that business sentiment soured to a seven-year low in the three months to March, as the outbreak hit sectors from hotels to carmakers.
“The tankan clearly shows a sharp deterioration in business sentiment and confirms the economy is already in recession,” said Yasunari Ueno, chief market economist at Mizuho Securities.
China’s Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) rose to 50.1 last month, from February’s record low of 40.3, and just a notch above the 50-mark that separates growth from contraction.
South Korea’s IHS Markit PMI plunged to 44.2, its lowest since January 2009 when the economy was reeling from the global financial crisis. The index was 48.7 in February.
Japan’s PMI fell to a seasonally adjusted 44.8 from a reading of 47.8 in February, its lowest since April 2009. The ruling coalition has called on the government to secure a stimulus package worth at least 60 trillion yen (US$553 billion), with 20 trillion yen in direct spending.
“Things are likely to get a lot worse in the months ahead,” Alex Holmes at Capital Economics said in a note to clients, nothing the survey period for the PMIs likely didn’t capture more recent lockdowns such as those in Malaysia and Thailand.
The consultancy expects global gross domestic product (GDP) to fall by more than 3% this year.
Policymakers across the globe, including in Asia, have announced massive monetary and fiscal stimulus measures to try to mitigate the economic fallout from the pandemic, keep cash-starved businesses afloat and save jobs.
But many measures have been short-gap steps to deal with the immediate damage to corporate funding and shore up banking systems amid worries of a credit crisis.
The International Monetary Fund has said the pandemic was already driving the global economy into recession, calling on countries to respond with “very massive” spending to avoid bankruptcies and emerging market debt defaults.