By Leika Kihara

TOKYO (Reuters – Asia’s manufacturing activity grew in December, as businesses took the rising number of global Omicron coronavirus strains in stride. But persistent supply limitations and rising input cost have clouded the future for certain economies.

Policymakers are concerned about the rising incidence of global diseases. Infections in China have forced some companies to stop production, and threatened to interrupt output at memory chip giants Samsung Electronics (OTC).

Surveys released Monday and Tuesday indicated that Omicron appears to have a subdued effect on output at the moment.

China’s factories activity rose at its highest pace for six months, according to earlier today’s Caixin/Markit Manufacturing Index Purchasing Managers’ Index (PMI).

According to the survey results, more small companies are located in coastal areas than in China’s PMI which showed an upsurge in factory activity, they match with private surveys.

The expansion of factories in other parts Asia has also been a success, with countries such as Vietnam and Malaysia thriving.

Capital Economics emerging Asia economist Alex Holmes said, “Manufacturing PMIs as well as timely trade data clearly show that Asia’s export-focussed sector gained momentum at the turning of the year.”

Omicron’s variant poses a major threat to our outlook but is not likely to disrupt the industry nearly as badly as Delta, he stated.

Japan, third in world economic importance, saw its manufacturing activity grow for the 11th consecutive month. Surveys showed that South Korea, a bellwether exporter, saw its major factories gauge experience the fastest rate of growth in just three months.

Analysts predict that Asia will continue to see an increase in exports and capital expenditures. In addition, Asia’s manufacturing PMIs should remain strong for the next few months. Morgan Stanley Research note by (NYSE:).

However, economists have warned of the risks associated with supply shortages or rising input costs, particularly in export-dependent countries such as South Korea.

Joe Hayes senior economist at IHS Markit stated, “Given South Korea’s importance in the automobile and electronics industries it will require substantial improvements in global supplies chains before we see an acceleration in manufacturing growth.”

Japan’s PMI remained at 54.3 in December. It was above the 50-mark threshold which indicates an expansion of activity, but below November’s 54.5 because new order growth softened.

South Korea’s PMI rose from 50.9 to 51.9 in November, to reach 51.9. This marks the 15th consecutive month for expansion. It was a result of rising domestic demand compensating slow overseas sales.

India’s manufacturing activity expanded in December but it was slower than November. This is because of the elevated price pressures that remained a problem.

Morgan Stanley analysts indicated that Omicron could present near-term risk to growth because it delays consumption recovery. But, the higher vaccine rates in Asia might help reduce the growth damage compared to the Delta wave.