Asia's factory activity shrinks in May as US tariffs bite

TOKYO: Asia's factory activity shrank in May as soft demand in China and the impact of U.S. tariffs took a heavy toll on companies, private surveys showed on Monday, highlighting the darkening outlook for the once fast-growing region.

AI Brief

Manufacturing in Japan, South Korea, and other Asian economies continued to shrink in May due to US tariffs and trade uncertainty.
China's weak demand and cheap exports are adding pressure, causing deflation concerns across the region.
Ongoing trade tensions, including new US tariffs, are stalling investment and economic recovery in Asia.

Trade-reliant Japan and South Korea continued to see manufacturing activity contract in May as U.S. President Donald Trump's automobile tariffs cloud the outlook for exports.

Adding to the gloom, an official survey on Saturday showed China's manufacturing activity shrank in May for a second month in a sign of weakness in the world's second-largest economy.

With many Asian economies making little progress in trade negotiations with the U.S., uncertainty will likely keep companies from boosting production or spending, analysts said.

"It's hard to expect a pick-up in Asia's manufacturing activity any time soon with countries in the region slapped with quite high 'reciprocal' tariffs," said Toru Nishihama, chief emerging market economist at Dai-ichi Life Research Institute.

"With domestic demand weak, China is flooding Asia with cheap exports, which is also putting deflationary pressure on the region's economies," he said.

Japan's final au Jibun Bank Manufacturing Purchasing Managers' Index (PMI) stood at 49.4 in May, up from April but staying below the 50.0 line that indicates contraction for the 11th successive month, a private survey showed on Monday.

The PMI for South Korea, Asia's fourth-largest economy, stood at 47.7 in May, also staying below the 50 mark for a fourth month due to frail demand and the hit from U.S. tariffs, a survey by S&P Global showed.

Both Japan and South Korea saw their economies contract in the first quarter, as Trump's tariffs and uncertainty over U.S. trade policy weighed on exports and corporate activity.

India's manufacturing growth slowed to a three-month low in May as demand softened amid price pressures and geopolitical tensions, a survey showed on Monday.

There is little sign conditions will improve.

On Friday, Trump said China had violated a two-way deal to scale back tariffs, whereas China contended it had maintained communication on trade with the United States. Trump also announced a doubling of worldwide steel and aluminium tariffs to 50%, once again rattling international trade.

Japan and the U.S. on Friday agreed to hold another round of trade talks ahead of the G7 summit in June, but Japan's top tariff negotiator said no deal would be reached without concessions on all U.S. tariffs, including on automobiles.

Vietnam, Indonesia and Taiwan also saw factory activity contract in May, private surveys showed.