Asia's factories sustain expansion but COVID-19 infections, rising raw material costs cloud outlook

Asia expanded factory activity moderately in May, but analysts warn that a spike in COVID-19 infections in countries like Taiwan and Vietnam could disrupt semiconductor output and supply chains.

Rising raw material costs also contributed to clouding the outlook.

Toru Nishihama, the chief economist at Dai-ichi Life Research Institute, noted that a spread of new variants is already negatively impacting supply chains, and if the situation persists, it would hit Asian manufacturers trying to diversify supply chains out of China.

With Asia's recovery being driven more by external demand, exporting problems would not bode well for the region's economies, Nishihama added.

Sharp rises in raw material costs and strains in supply chains crimped some Chinese firms' production, according to a survey that showed factory activity in China slowed slightly in May. The expansion in May was still the fastest for China this year due to solid demand at home and overseas

Taiwan's PMI was at 62.0 in May, dipping from April but well above the 50-mark that separates growth from contraction.

Vietnam's PMI in May dropped to 53.1 from 54.7 in April, while Japan's slid to 53 from 53.6 in April.

South Korea's PMI extended growth for the eighth straight month in May at 53.7, though slowing from April.