Manufacturing activity strong in December as Omicron variant continues

Manufacturing activity strong in December as Omicron variant continues

LONDON TOKYO: Global manufacturing activity remained strong in December as factories took rising cases of the new Omicron coronavirus variant in their stride, although persistent supply constraints and rising costs clouded the outlook for some economies.

With outbreaks in China forcing some firms to suspend production and disrupting output for memory chip giants, such as Samsung Electronics, has inspired policymakers to tread carefully, with outbreaks in China forcing some firms to suspend production.

The Omicron output seems to be modest, according to surveys released on Monday and Tuesday with a cooling in demand for goods in the United States still offset by robust numbers.

On Tuesday, the Institute for Supply Management said that its index of US factory activity fell to 58.7 last month from 61.1 in November, the lowest tally since January. Supply constraints are beginning to be loosened and prices paid for inputs by factories fell by the most in a decade. Manufacturing accounts for about 12 per cent of the US economy.

A survey showed on Monday that manufacturing activity in the euro zone was resilient at the end of 2021, as factories took advantage of some easing of supply chain bottlenecks and stocked up on raw materials at a record pace.

Manufacturing activity in Britain grew slightly faster than originally thought last month, according to another survey on Tuesday.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, believes that supply chain disruptions are likely to worsen this month, given that Brexit customs checks have been bolstered and Omicron will lead to renewed factory closures in Asia.

In December, factory activity in China increased at its fastest pace in six months, according to the Caixin Markit Manufacturing Purchasing Managers' Index PMI.

The findings from the private survey, which focuses more on small firms in coastal regions, tally with those in China's official PMI that pointed to an increase in factory activity.

Manufacturing activity in other parts of Asia was expanding in countries ranging from Vietnam to Malaysia and the Philippines.

Alex Holmes, emerging Asia economist at Capital Economics, said that Asia's export-focused industry gained momentum at the turn of the year, as a result of manufacturing PMIs and timely trade data.

He said that the Omicron variant is unlikely to cause as much disruption to the industry as Delta did in Q 3, as the Omicron variant poses a key threat to the outlook.

Manufacturing activity in Japan, the world's third-biggest economy, increased for 11th consecutive month, while South Korea saw the fastest expansion in three months, according to surveys.

Morgan Stanley analysts wrote that Asia's exports and capex upswing will be sustained by the continued global recovery, and Asia's manufacturing PMIs will remain moderately strong over the coming months.

Japan's PMI stood at 54.3 in December, above the 50 mark threshold that indicates expansion in activity but lower than November's 54.5 new order growth softened.

South Korea's PMI went to 51.9 from 50.9 in November to mark the 15th consecutive month of expansion, as rising domestic demand offset sluggish overseas sales.

India's manufacturing activity continued to expand in December, though at a slower pace than in November, as elevated price pressures remained a concern.

The Omicron variant poses near-term growth risks by delaying the consumption recovery, but higher vaccination rates in Asia could help limit the damage to growth compared to the Delta wave, Morgan Stanley analysts said.