Asian factory activity expands thanks to global AI boom

TOKYO: Private surveys revealed that factory activity across Asia surged in September due to the global AI boom, providing some comfort to policymakers troubled by persistent cost pressures stemming from the US-Israeli war on Iran. Energy price hikes complicated the global economic outlook, yet export leaders Japan, South Korea, and Taiwan experienced manufacturing activity growth driven by robust demand for chips and AI-related products.

China's factory activity also expanded in September, according to surveys, following a resumption of operations as adverse weather disruptions subsided. South Korea, in particular, recorded the largest month-over-month increase in factory activity in four months, with new orders and production growth reaching their highest levels in five-and-a-half years. Usamah Bhatti, an economist at S&P Global Market Intelligence, attributed these expansions to the combined strength of the semiconductor and automotive sectors.

South Korea's purchasing managers' index (PMI) for September stood at 53.9, up from 52.3 in August, marking the highest level since May. The index remained above 50, indicating expansion, for the tenth consecutive month. Taiwan, also benefiting from the global AI boom, recorded a PMI of 56.7 in September, up from 54.7 in August.

Japan's PMI for September was 54.1, a slight decline from 54.9 in August, representing the weakest pace of expansion in six months due to slowing output and new orders. However, strong overseas demand contributed to continued robust new export orders for a ninth consecutive month, driven by surging demand in Asia and improved sales to the US.

Despite the slowdown, cost pressures persisted, with firms raising selling prices at one of the steepest rates since late 2022, according to the Japan PMI survey. Factory activity was mixed among other Asian economies, with Indonesia and Vietnam witnessing expansion, while the Philippines and Malaysia contracted.