Asian factory activity expands thanks to global AI boom

Factory activity across Asia surged in September due to the global AI boom, according to private surveys released on Thursday. This positive trend provided some respite to policymakers grappling with persistent cost pressures stemming from the US-Israeli conflict in Iran. However, concerns lingered as surging energy prices cast a shadow over the global economic outlook.

Export powerhouses such as Japan, South Korea, and Taiwan experienced a significant expansion in manufacturing activity, fueled by robust demand for chips and AI-related goods. On Wednesday, surveys revealed that China's factory activity also expanded in September, following a period of weather disruptions that initially disrupted production.

South Korea witnessed the most substantial growth in September, with factory activity expanding at its fastest pace in four months. This surge in activity was driven by robust export demand, which surged at the fastest rate in 15-1/2 years. New orders and production growth reached levels not seen in over five and a half years, according to Usamah Bhatti, an economist at S&P Global Market Intelligence.

South Korea's purchasing managers' index (PMI), which stands at 53.9 in September, was up from 52.3 in August and marked the highest level since May. The index remained above the 50 threshold, indicating expansion, for a record 10th consecutive month.

Taiwan, another beneficiary of the global AI boom, also reported a strong PMI of 56.7 in September, up from 54.7 in August. This marked the second consecutive month of expansion for Taiwan. Meanwhile, Japan's PMI stood at 54.1 in September, marking a slowdown from 54.9 in August and the weakest pace of expansion in six months. Despite this slowdown, overseas demand remained robust, with new export orders rising for a ninth consecutive month due to strong demand in Asia and improved sales to the United States.

However, cost pressures persisted as firms continued to raise prices at one of the sharpest rates since late 2022, as indicated by the Japan PMI survey.

Other Asian economies exhibited mixed performances. While Indonesia and Vietnam experienced growth in factory activity, the Philippines and Malaysia witnessed a contraction.