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Asia's factory pain eases as region emerges from pandemic

TOKYO (Reuters) – Asia’s factory pain showed signs of easing in June, as a rebound in China’s activity offered some hope the region may have passed the worst of the devastation caused by the coronavirus pandemic.

But sluggish global demand and fears of a second wave of infections will tame any optimism on the outlook and keep pressure on policymakers to support their ailing economies.

China’s factory activity grew at a faster clip in June after the government lifted coronavirus lockdown measures, a private sector survey showed on Wednesday.

Manufacturing activity also expanded in Vietnam and Malaysia, pointing to a slow but steady recovery ahead.

Japan and South Korea continued to see manufacturing activity shrink, underscoring the heavy blow the pandemic dealt to their export-reliant economies, although the pace of their declines slowed.

“The chance of a V-shape recovery in the manufacturing sector appears slim at this stage,” said Joe Hayes, economist at IHS Markit, which compiles the survey.

“We’re still awaiting signs of meaningful improvement in Japan’s manufacturing sector, with the PMI for June failing to stage a substantial recovery.”

China’s Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) rose to 51.2 in June from 50.7 in May, marking the highest reading since December 2019. That followed a similarly upbeat reading from the Chinese government’s own PMI on Tuesday.

Vietnam and Malaysia also saw their PMIs crawl back above the 50-mark separating growth from contraction, a welcome sign for policymakers struggling to combat the pandemic’s fallout.

But analysts expect any recovery in the region to be slow.

While China’s export orders shrank at a slower pace, its employment contraction worsened, the PMI showed, underscoring the fragile recovery in the world’s second-largest economy.

“Overall manufacturing demand recovered at a fast clip, but overseas demand remained a drag,” said Wang Zhe, senior economist at Caixin Insight Group.

Japan’s PMI rose to a seasonally adjusted 40.1 in June, while South Korea’s PMI ticked up to 43.4 – both remaining far below the boom-or-bust threshold of 50.

Separately, a Bank of Japan survey showed big manufacturers’ confidence sinking to levels last seen during the 2009 global financial crisis, reinforcing expectations the country was sinking deeper into recession.

“If demand doesn’t rebound fast enough, companies will have to shed jobs,” said Shinichiro Kobayashi, senior economist at Mitsubishi UFJ Research and Consulting. “That will delay Japan’s economic recovery, which could end up in a L-shape.”

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