• Bloomberg


Asia’s factories took a tumble in February under the weight of the rapidly spreading coronavirus outbreak, with a severe plunge in activity in China driving down output across the region.

South Korea and Japan, where confirmed cases of the virus have accelerated recently, showed sharp declines in production, according to purchasing manager surveys released by IHS Markit on Monday.

South Korea’s purchasing manager’s index, a critical bellwether of global demand, dropped to a four-month low of 48.7 from 49.8 in January, while the Jibun Bank Japan index declined to 47.8, the lowest reading since May 2016.

Taiwan dropped below 50, the dividing line between expansion and contraction, while Thailand and Malaysia stayed in that territory. Vietnam’s PMI fell to a more than six-year low of 49.

The factory sentiment data shows how the virus is rippling through the region, disrupting supply chains and depressing demand. Travel restrictions are rampant, schools and businesses in pockets of the region are shuttered and governments are scrambling to provide stimulus to shore up their economies.

China’s official PMI plunged in February to a record-low 35.7 from 50 at the start of the year, according to data released Saturday. The big decline signals a worse than expected first-quarter contraction, with Nomura Holdings Inc. economists led by Lu Ting projecting the economy shrank 2.5 percent in the first quarter from the previous period.

Global markets have been roiled by virus fears, with equities and bond yields sliding Monday as investors digested the PMI data.

Indonesia was a lone bright spot in the regional data, seeing its PMI gauge rise to 51.9, its first expansion reading since June. Southeast Asia’s biggest economy has registered no official coronavirus cases amid concern that testing hasn’t been vigorous enough.

“We expect China’s PMIs to see some improvement in the coming months. Yet the continued disruptions in the supply chain and weakness of the Chinese economy could put downward pressures on the regional economies for some time. Policy support is expected across in China and the rest of Asia,” Chang Shu, chief Asia economist at Bloomberg Economics said.

Disruption to manufacturing has been evident across the region as companies take steps to stop the virus from spreading.

A Hyundai Motor Co. plant in South Korea last week halted operations after a worker was confirmed infected. Samsung Electronics Co. also temporarily stopped output at a plant last month after an employee tested positive for the disease.

China’s economy is gradually returning to work. Activity was likely running at 60 percent to 70 percent capacity last week, according to a Bloomberg Economics report, up from about 50 percent two weeks ago.

South Korea has been particularly hard hit over the past two weeks as virus cases surged above 3,500.

The Bank of Korea refrained from cutting interest rates when it met last week, opting instead to extend inexpensive loans to small businesses and leaving it to the government to take broader action.

South Korea’s manufacturers and exporters will likely remain under pressure, said Joe Hayes, an economist at IHS Markit.

“Even if demand does recover, day-to-day operations are likely to suffer as firms seek alternative suppliers or operate below capacity until normality across supply chains is restored,” he said.

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