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APAC economies Japan and Australia saw their paths diverge amid
mixed COVID-19 Omicron developments. While Japan's COVID-19 cases
continued to rise into early February, Australia had seen
virus-related disruptions ease, leading to the latter's turnaround
in private sector output. Price trends likewise differed, though
both countries showed improvements in employment levels.
Japan economy hit by Omicron wave while Australia
recovers
The latest IHS Markit flash PMI showed Japan's private sector
activity slumped further into contraction in February, with the au
Jibun Bank Flash Japan Composite PMI falling to the lowest since
June 2020 at 44.6. This also marked a second consecutive month of
private sector output contraction, as a quasi-state of emergency
implemented across the majority of Japan's 47 prefectures in
end-January due to soaring COVID-19 cases dampened economic
activity
In contrast, the IHS Markit Flash Australia Composite PMI
indicated a return to expansion for Australian private sector
output in February following a brief, but sharp, decline in
January. This was in tandem with the improvement in COVID-19
conditions in Australia as new case numbers receded significantly
from the January peak. Absent new restrictions, the data suggest
the Australia economy has returned to a recovery path.
IHS Markit Flash Composite PMI
Daily new COVID-19 cases
Service sector performances highlight COVID-19
disruptions
Breaking down the performance by sectors, the differentiation in
private sector performance between Japan and Australia was most
apparent across their respective service sectors.
Both manufacturing and service sector output returned to
expansion in February for Australia, with production efforts
significantly improving as COVID-19 disruptions eased. Service
sector business activity in particular reflected the short-lived
nature of the Omicron wave, bouncing back strongly into
expansion.
Manufacturing and services output
In Japan's case, however, the relative lag of the COVID-19
Omicron wave, coupled with the reimposition of restrictions, meant
that services activity was hit harder. The au Jibun Bank Flash
Services PMI Business Activity Index in fact dropped to the lowest
seen since May 2020, surpassing the August 2021 trough.
Japan's manufacturing output likewise declined, as a result of
disruption to production and supply chains, even as the headline au
Jibun Bank Manufacturing PMI remained in expansion territory.
Price pressures persist for Japan and Australia as
supply constraints linger
It was also observed that with the COVID-19 wave, the pressure
upon prices shifted from input costs to output prices.
Australia, which saw the Omicron wave peaking earlier in
January, saw input price inflation ease from the prior month's
record in February, though remaining severe by historical
standards. Output prices meanwhile surged, driven by higher demand
growth as the Omicron wave eased, resulting in record output price
inflation.
On the other hand, Japan, which followed closely with the
Omicron wave crashing upon its shores later in January - and cases
seemingly peaking in February, found input prices to have risen at
the fastest rate in at least 13 years according to the latest flash
PMI data. Disruptions to supply chains and shortages of input
materials, aggravated by the COVID-19 pandemic, powered the surge
in input prices. It will be important to observe how these are
passed on to clients in the coming months, as in the case of
Australia.
Input and output price indices
Observing manufacturers' supplier delivery times, lead times
were also reported to have lengthened at more severe rates across
both Japan and Australia, providing early signals of lingering
supply chain constraints in APAC economies in February.
Manufacturing suppliers' delivery times
Employment conditions remained positive in the face of
the Omicron wave
Despite the varying degrees of Omicron variant disruptions,
employment conditions improved across both Japan and Australia.
Manufacturing employment growth slowed in Japan, but were largely
attributed to difficulties in replacing retiring or job-switching
employees. Service sector employment levels were almost unchanged
in February, improving from the state of decline in January.
In Australia, the signs were more encouraging, with both
manufacturing and services firms hiring at strong rates in February
despite reporting difficulties in securing skilled staff, thus
reflecting the robust employment conditions and business confidence
amongst private sector firms as the COVID wave eased.
Easing of entry restrictions for foreigners will also be
conducted across both Japan and Australia into late-February, which
is expected to provide some relief towards manpower constraints
across both APAC regions and potentially support output growth.
Employment indices
Outlook for Japan and Australia private
sectors
Business sentiment amongst Japan and Australia private sector
firms meanwhile remained broadly positive in February, but likewise
diverged in trajectory.
While Australia's Future Output Index picked up from January's
21-month low, private sector firms in Japan were the least upbeat
since January 2021. Concerns with regards to the latest Omicron
variant's disruption to the Japanese economy weighed on the minds
of purchasing managers. That said, early indications of the latest
COVID-19 wave turning a corner in Japan offers some hopes for
imminent recovery. Based on Australia's experience, the recovery
from the Omicron wave can be short-lived with the corresponding
easing of restrictions.
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
At the same time, business costs increased at historically elevated rates, with new record levels of cost inflation… https://t.co/ofDaBfq7KX
May 25
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