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Factories take Omicron risks in their stride for now -Breaking


© Reuters. FILE PHOTO – A factory is seen at the foot of Mount Fuji, Yokohama (Japan), January 16, 2017. REUTERS/Kim Kyung-Hoon

Jonathan Cable, Leika Kihara

LONDON/TOKYO – December saw a strong global manufacturing sector, with factories taking rising Omicron coronavirus cases in their stride. However, supply restrictions and rising costs have hampered some economies’ prospects.

Policymakers have been urged to take care as rising global infectious diseases are forcing many companies to cease production. This is in addition to the threat of disruption to output from memory chip giants such as Samsung Electronics (OTC):

According to Omicron surveys, however, Omicron’s impact on output seems to have been modest for the time being, as per data released Monday and Tuesday.

The euro area’s manufacturing activity remained strong at the end 2021, as many factories took advantage of an easing of supply chain bottlenecks to stock up on raw materials at record levels. A survey was released Monday.

According to a second survey, the growth in manufacturing activity was slightly higher than expected last month in Britain, according to another report on Tuesday.

Samuel Tombs is the chief UK economist for Pantheon Macroeconomics. He stated that supply chain disruptions could worsen because of Brexit customs controls. Omicron also likely will cause new factory closings in Asia.

China’s Factory Activity Index (PMI), which was released by Caixin/Markit Manufacturing, showed that December saw the country expand at its fastest pace for six months.

These findings, which are more focused on coastal small businesses, match those from China’s PMI, which indicated an increase in factory activity.

The expansion of manufacturing activities in other parts Asia has also been positive, with countries such as Vietnam and Malaysia thriving.

Capital Economics’ emerging Asia economist Alex Holmes stated that “Manufacturing PMIs, timely trade data show that Asia’s export-focused industry gained momentum at this time of year.”

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

Japan is the third largest economy in the world. In December, Japan’s manufacturing activity grew 11 times in a row, while South Korea, a bellwether, saw its expansion speed up in the past three months. Surveys showed that South Korea was the most dynamic exporter in the last three months.

“We anticipate Asia’s capex and exports to continue rising due to continued global recovery. Asia’s manufacturing PMIs should remain relatively strong in the next months.” Morgan Stanley Research note by (NYSE) analysts

Japan’s PMI was 54.3 in December. This is still above the threshold of 50 that signals expansion, but less than November’s 54.5. New order growth has softened.

South Korea’s PMI climbed to 51.9, from 50.9 in November. This is the 15th straight month of growth. Rising domestic demand outweighed slowing overseas sales.

India’s manufacturing activity grew in December, but at a slower rate than November due to elevated prices.

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.