Supply Chain Latest: Asia's Factories Withstand Omicron Disruptions - Bloomberg

The world’s biggest manufacturing region appears to be shaking off the surge in omicron infections, at least for now.

That’s the early take from key gauges of manufacturing activity for the Asia region that showed output continued to hold up through December, even as the latest virus variant multiplies at a dizzying speed from France to Australia.

Activity ticked higher across the region. The IHS Markit manufacturing purchasing managers’ index for Taiwan rose to 55.5 from 54.9 in November while South Korea rose to 51.9 from 50.9. Malaysia and the Philippines also posted better readings, though Indonesia and India dipped.

In China, both official and private sector readings of manufacturing improved in December, suggesting global demand remains robust.

Some analysts warn that the country’s continued pursuit of a zero-Covid strategy will mean inevitable disruption to both production and transportation of goods. An outbreak of cases in the eastern city of Ningbo, for example, is being closely watched for any impact it has on the city’s port, one of the world’s busiest.

Lingering Concerns

Priyanka Kishore, an economist at Oxford Economics, highlighted that businesses remain concerned about the risk of supply chain disruptions and renewed Covid flare-ups.

“While we expect gradual resolution of supply chain disruptions to support Asia’s production and growth in 2022, re-imposition of restriction to limit new Covid waves may lead to a dampening in demand, especially in the short-term,” she said.

Check Out: Bloomberg’s Guide to 2022 Inflation, Pandemic Recovery

Still, if the better readings hold up, it could mean Asia’s manufacturers will cope better this year than they did last year. Lockdowns during the wave in mid-2021 upended the region’s factories, from their staffing to their sourcing of raw materials.

While slowing global growth and a shift back to services from goods may see Asia’s export boom fade, the overall outlook remains upbeat, according to economists at Goldman Sachs.

“We expect global growth to remain above trend this year, and at least through early 2022 Covid-related restrictions will continue to play a role in boosting foreign demand for goods,” the bank’s economists wrote.

— Enda Curran in Hong Kong

Charted Territory

Slow But Steady

China's economy expands for 7th straight month

Source: Bloomberg Economics

China’s economy expanded at a moderate pace in the final month of the year, supported by better business sentiment, easing factory inflation pressures and faster car sales. However the slumping property sector and slowing external demand are clouding the outlook for the world’s second-largest economy. That’s the outlook from Bloomberg’s aggregate index of eight early indicators for this month. The overall number stayed unchanged in December, indicating the economy is still improving at a stable pace, but there are mixed signals from some of the real-time economic data. Also, check out our story about how China is falling short on its promises in a trade deal signed with the U.S. almost two years ago.

Today’s Must Reads

Shortages in Sydney | Residents of Sydney, Australia, are facing empty shelves at some supermarkets as exploding coronavirus cases force a range of staff from truck drivers to warehouse workers into isolation.
Export struggles | Pakistan’s natural gas shortage is hurting its crucial textile exports, according to an industry trade organization, putting even more stress on the nation’s struggling economy.
Border delays | Vietnam government reportedly urged China’s Guangxi region to reopen its border gates with the Southeast Asian country and extend customs clearance hours to ease supply-chain snarls amid zero-Covid-19 policies. Vietnam is also seeking $15.2 billion in stimulus to lift its economy.
Farm support | California’s Port of Oakland will open a new container yard for agricultural exporters struggling with capacity shortages and high freight costs.
Labor strains | From seafarers refusing to get back on ships to truck drivers whose concern over Covid-related border closures trumps the lure of higher pay, the transport industry is bracing for another roller coaster year of supply-chain disruptions.
Positive signs | South Korea’s factory production advanced by the most since mid-2020 in November, suggesting supply disruptions that hurt manufacturing in key industries were easing before an omicron-triggered surge in global infections. Meanwhile, Japan’s industrial production jumped by a record.
Export pains | China faces “unprecedented” difficulty in stabilizing trade next year as favorable conditions that boosted export growth this year won’t be sustainable, according to a commerce ministry official.
Cumbersome gap | The U.S. merchandise trade deficit widened to a record in November as imports surged to an all-time high amid solid domestic consumer demand and business investment.
Launching Spud-nik | U.S. freight forwarder Flexport will help fly three planes loaded with potatoes to Japan, where a shortage has caused McDonald’s in the country to ration french fries.

On the Bloomberg Terminal

What’s next? | The global economy heads into 2022 with hopes for a return to normality and fears that it will — once again — be delayed. Bloomberg Economics’ base case is the recovery remains robust, inflation moves back to target, and central banks begin to normalize policy.
Steaming ahead | The container liner industry appears poised to extend strength in 2022, albeit with momentum potentially down from this year’s peak, according to Bloomberg Intelligence, which also sees supply-and-demand dynamics supporting profitable dry-bulk rates next year.
Use the AHOY function to track global commodities trade flows.
Click HERE for automated stories about supply chains.
See BNEF for BloombergNEF’s analysis of clean energy, advanced transport, digital industry, innovative materials, and commodities.
Click VRUS on the terminal for news and data on the coronavirus and here for maps and charts.

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