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Asia’s factory activity shrinks as China’s economy weakens

Asia has been among the few bright spots in the global economy, though China's slowdown clouds the outlook

Asia’s factory activity shrank in July, private surveys showed on Tuesday, a sign slowing global growth and weakness in China’s economy were taking a toll on the region’s fragile recovery.

The data underscores the challenge policymakers face in keeping inflation at bay with tight monetary policy, while forestalling headwinds from a potential recession in the world’s second-largest economy.

Japan, South Korea, Taiwan and Vietnam saw manufacturing activity contract in July, the surveys showed, highlighting the strain sluggish Chinese demand is inflicting on the region.

China’s Caixin/S&P Global manufacturing purchasing managers’ index (PMI) fell to 49.2 in July from 50.5 in June, missing analysts’ forecasts of 50.3 and marking the first decline in activity since April. The 50-point index mark separates growth from contraction.

The data was in line with the government’s official PMI on Monday, raising challenges for policymakers seeking to revive momentum in China’s post-Covid recovery.

“Manufacturing PMIs remained in contractionary territory across most of Emerging Asia last month and the underlying data point to further weakness ahead,” said Shivaan Tandon, emerging Asia economist at Capital Economics.

“Falling new orders, bleak employment prospects and high inventory levels point to subdued factory activity in the coming months.”

Japan’s final au Jibun Bank PMI fell to 49.6 in July, down from 49.8 in June, due to weak domestic and overseas demand.

South Korea’s PMI stood at 49.4 in July, up from 47.8 in June but staying below the 50-threshold that separates growth from contraction, the survey by S&P Global showed.

Taiwan’s manufacturing PMI fell to 44.1 in July from 44.8 in June, while the index for Vietnam rose to 48.7 from 46.2, the surveys showed.

Asia has been among the few bright spots in the global economy, though China’s slowdown clouds the outlook.

In revised forecasts issued in July, the International Monetary Fund projects emerging Asia’s economic growth will accelerate to 5.3 percent this year from 4.5 percent in 2022. It expects China’s economy to expand 5.2 percent this year after a three percent increase in 2022.