By Leika Kihara

TOKYO, Reuters – Asia’s factories experienced a rapid recovery in February amid indications that the coronavirus had less impact on business. However, the Ukraine crisis quickly emerged as a new risk to supply chains and could worsen costs.

International sanctions against Russia after its invasion in Ukraine have shaken markets. They also boosted oil prices. These factors are causing problems for Asian countries and businesses that already struggle with high input costs.

Philip Lowe, Governor of Reserve Bank of Australia said Tuesday that the war in Ukraine was a new major source of uncertainty after his bank kept interest rates below a record.

The conflict in Eastern Europe is a significant threat to the global economy. However, February indicators showed that conditions were improving since before the dramatic escalation of the crisis.

Official and private Chinese factory survey data showed expansionary activity, suggesting resilience in the world’s second-largest country despite economic pressures.

In Malaysia, Vietnam, Philippines and other countries that have reopened their economies slowly, manufacturing activity increased even though Omicron infection continued to spread. Surveys revealed this.

Due to rising input costs and COVID-19 restraints, Japan’s factory growth slowing slowed down to a 5-month low in February.

In Taiwan and Indonesia, the expansion of activity has slowed as a result of the residual effects of disruptions in supply chains caused by the pandemic.

Even before the Ukraine crisis, the surveys showed that Asia was in fragile recovery.

Toru Nishihama from Dai-ichi Life Research Institute Tokyo said that “the most immediate effect of the crisis will be from rising oil price, which will deal an severe blow to many Asian countries.”

Russia is a major exporter, including rare metals and gas, of essential goods for the production of chip products. The crisis could lead to supply disruptions that can be devastating for countries like Japan and South Korea.

INFLATION RISKS

China’s factory activity increased in February due to increasing new orders. A private survey on Tuesday showed that, however, the employment situation remained stagnant.

China’s PMI, the official purchasing manager’s index of manufacturing in China, rose to 50.2 in February. It is now above 50 points that marks growth or contraction. The reading was 50.1 in January, which surprised analysts who had expected a slowerdown to 49.9.

According to Julian Evans-Pritchard (Capital Economics senior China economist), despite the pickup, China’s PMI is still well below its prepandemic average.

He stated that China’s economy has struggled to gain momentum this year.

Japan’s PMI dropped to 52.7 from 55.4 last January. It is now at 52.7, the slowest rate of growth since September 2011.

Russia’s invasion could have a dramatic effect on commodities prices. These policies will be complicated by the fact that they must manage inflation while also supporting growth.

Malaysia is one of the countries that will hold off until the end of the third quarter to increase rates, as analysts from Reuters expect. This is in order to sustain an uneven economic recovery.