Concerns about a global downturn are clouding Asia’s recovery prospects, with manufacturing activity growth slowing in Japan and Australia, putting pressure on policymakers to support their economies while tightening monetary policy to battle inflation.

The purchasing managers’ index (PMI) poll revealed on Friday that Japan’s manufacturing activity rose at the slowest rate in ten months in July, bode ill for an economy still battling to recover from the pandemic. more info

A separate survey released on Friday indicated that factory activity in Australia fell as well, with the index falling to 55.7 in July from 56.2 in June.

The polls highlight the impact of supply restrictions, rising raw material costs, and declining global demand, all of which have been identified by the Bank of Japan as important dangers to the country’s economic recovery.

“July’s PMIs suggest that the manufacturing sector is slowing as demand weakens, while the latest COVID-19 is starting to hit the services sector,” Marcel Thieliant, senior Japan economist at Capital Economics, said on Japan’s PMI.

“While that index never dropped as far as in other advanced economies, it is not showing the strong improvement seen elsewhere either.”

Soaring inflation, fueled by Russia’s war in Ukraine, has compelled central banks all over the world to tighten monetary policy, even if it means chilling their economies.

Despite the economic costs of the Ukraine conflict, the European Central Bank raised interest rates for the first time in 11 years on Thursday, as concerns about inflation outweighed fears about growth.

The Federal Reserve’s aggressive rate hike plans have fueled market concerns about a US recession. Many Asian central banks were also trying to tighten policy in order to control inflation and keep their currencies from weakening too much. 

China and Japan continue to be exceptions by maintaining loose monetary policy, indicating that their economies – the world’s second and third largest – lack the strength to overcome the problems in other regions of the world.

China’s economic development fell substantially in the second quarter, dragged down by widespread COVID lockdowns and indicating to continued pressure from a bleak global outlook in the coming months.

The Asian Development Bank (ADB) cut its growth prediction for the area on Thursday due to the slowing of the world’s second-largest economy and the consequences from aggressive central bank tightening.

(Adapted from reuters.com)

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