Asian Factory Activity Stays Subdued as Tariff Deadline Looms

Published: 2025-07-01 03:18:25 ET SPGI

Published on 07/01/2025 at 03:18

By Kimberley Kao

Asia factory activity ended the second quarter on a weak note, as U.S. tariff uncertainty weighed on orders and production across much of the region.

The downturn in manufacturing in the Asean bloc deepened at the midway point of 2025, as production shrank, while new orders, purchasing activity, and employment declined, S&P Global's purchasing managers survey showed.

"Risks stemming from ongoing international tensions and tariff-related announcements inject uncertainty into the outlook for the year ahead," Maryam Baluch, economist at S&P Global Market Intelligence, said Tuesday.

Asian countries face sharply higher duties from the U.S. that could significantly hurt export growth. Many are in talks with the Trump administration but with the so-called reciprocal tariffs due to kick in next week, the clock is ticking.

The June set of S&P Global's purchasing managers indexes paint a fragmented picture of Asia's factory sector, reflecting a lack of clarity on tariffs.

PMIs for tech export powerhouses Taiwan and South Korea continued showing declines in output and sales.

Though Korean firms signalled areas of improvement in the domestic market, Taiwanese manufacturers were much less upbeat, cutting production, purchasing and headcount as sales fell, the surveys showed.

For Annabel Fiddes, economics associate director at S&P Global Market Intelligence, it seems unlikely that Taiwan's manufacturing sector can pick up unless there is significant improvement in the global trade environment.

Demand conditions also remained challenging for Japanese manufacturers, recording further drops in sales both at home and abroad, Fiddes added.

That said, some companies in Japan were more hopeful about the outlook, though Fiddes thinks a sustained recovery in production hinges on a lasting upswing in demand, which remains curbed by tariff concerns.

China's PMI was a case in point, as the temporary trade truce between Beijing and Washington helped manufacturing activity bounce back in June.

But the mild growth seems fragile. External demand stayed weak, with consumer goods under particular pressure from U.S. tariffs, causing new export orders to contract for a third straight month, said Wang Zhe, senior economist at Caixin Insight Group.

India bucked the trend of muted growth, with new export orders surging as output and sales both rose. Companies saw one of the fastest increases in external orders in the survey's over 20 years of history, the HSBC India PMI compiled by S&P Global showed, suggesting that India is benefiting from demand diversion.

Despite some bright spots, the readings were mostly subdued, said Shivaan Tandon at Capital Economics. For him, the PMIs suggest that weaker global demand will take a toll on manufacturing activity in Asia.

Write to Kimberley Kao at [email protected]

(END) Dow Jones Newswires

07-01-25 0317ET