Taiwan, South Korea's Factory Output Reaches Two-Year Peak

Revival in Manufacturing Activity Across Asia Led by Taiwan and South Korea

Manufacturing sectors in Taiwan and South Korea witnessed their best performance in two years this June, as indicated by the latest purchasing managers' indexes from S&P Global. Taiwan's PMI surged to an impressive 53.2, a peak not seen since March 2022, signifying robust expansion. The increase was attributed to a broad spike in demand, boosting both domestic and international sales, especially in the semiconductor realm.

South Korea's PMI also saw a significant rise to 52, marking its highest in two years and building on the gains from May when it first breached the 50 mark after months of contraction. This uptick is seen as a promising sign for global industrial activity and trade, providing hope in an otherwise mixed international economic landscape. According to S&P, orders from Asian, European, and North American clients fueled this growth due to South Korea's pivotal role in supply chains for critical goods like batteries and semiconductors.

Asia's Manufacturing Momentum Amid China's Uneven Recovery

Despite China's patchy recovery, Asia has managed to gain substantial momentum. Official data revealed that China’s manufacturing PMI remained in the contraction zone in June, even with several government stimulus initiatives. However, a private index that tracks smaller and export-oriented firms rose to a three-year high of 51.8, indicating improved performance in that segment.

Vietnam, a significant export hub in Southeast Asia, posted a PMI of 54.7, reflecting increased production, purchasing, and staffing to match a surge in new orders. Similarly, the Philippines, Thailand, and Indonesia continued to experience growth in manufacturing activities last month. On the other hand, Japan stayed steady with a PMI of 50, while Malaysia slipped slightly into contraction. Australia underperformed with its manufacturing conditions deteriorating further, marked by a fifth consecutive month of contraction, landing at 47.2 in June.

Global Economic Implications and Potential Risks

The rebound in Asia’s manufacturing sector is a beacon of optimism for the global economy struggling with renewed trade tensions. The US and European Union are contemplating higher tariffs on Chinese products, including electric vehicles and semiconductors, arguing these enjoy unfair subsidies that skew competition. China has responded with threats of retaliatory measures.

Inflation remains a critical economic risk. Rising manufacturing activity has led to increased production costs, driven by pricier raw materials such as crude oil and electronics, exacerbated by weaker domestic currencies. This hike in costs has led to higher prices for goods. Domestically, wages, transportation, and utility costs have also climbed. Maryam Baluch, an economist at S&P Global, highlighted the need to monitor these inflationary pressures closely in the latter half of the year, as they could influence central bank policies and interest rates.

(With updates on China’s Caixin data and regional context)