Asia's factory activity expands in June on solid global demand

FILE PHOTO: Employees wearing face masks work on a car seat assembly line at Yanfeng Adient factory in Shanghai, China, February 24, 2020. REUTERS/Aly Song/File Photo

By Leika Kihara

TOKYO (Reuters) - Asia's factory activity expanded in June on solid momentum in the global economy and brightening prospects for semiconductor output, surveys showed on Monday, offering policymakers some hope the region can weather the hit from soft Chinese demand.

But cost pressures weighed on manufacturers in countries like Japan, where the weak yen is boosting the price companies pay for fuel and raw material imports.

China's Caixin/S&P Global manufacturing purchasing managers' index (PMI) rose to 51.8 in June from 51.7 in May, a private survey showed on Monday, remaining above the break-even line of 50.0 that separates growth from contraction. It marked the fastest clip in more than three years and exceeded market forecasts of 51.2.

The private-sector reading followed official PMI data released on Sunday that showed China's manufacturing activity fell for a second month in June and services activity slid to a five-month low.

The surveys show how Chinese firms are ramping up production despite weak domestic demand, which Beijing has failed to reverse with a rescue package for an ailing property sector.

In a sign the Asian region was benefiting from solid global demand, South Korea's factory activity growth quickened in June to the fastest in 26 months on surging new orders, a private survey showed on Monday.

Factory activity also expanded in June at a faster pace than in May in Vietnam and Taiwan, surveys showed.

"Another strong month of data provides further evidence that global industrial activity and trade are picking up," said Joe Hayes, principal economist at S&P Global Market Intelligence, on South Korea's factory activity.

"Viewed as a bellwether for exports due to its integration in supply chains for key intermediate goods like batteries and semiconductors, South Korean manufacturing output and orders often provide leading signals for trends more broadly."

Japan's factory activity expanded in June, but at a slower pace than in May, as companies struggled with rising costs due to the weak yen.

The final au Jibun Bank Japan manufacturing PMI was at 50.0 on the break-even line that separates growth from contraction, after a brief improvement to 50.4 in May, a survey showed.

An index gauging Japanese firms' future output expectations rose to a six-month high thanks to a better medium-term outlook for the car and chip sectors, the PMI survey showed.

The International Monetary Fund (IMF) expects Asia's economies to head for a soft landing as moderating inflation creates room for central banks to ease monetary policies to support growth. It expects growth in the region to slow from 5% in 2023 to 4.5% this year and 4.3% in 2025.

(Reporting by Leika Kihara; Editing by Sonali Paul)