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Preliminary PMI survey data indicate output rose in Japan and
Australia in April, supported by services expansion
Supply chain constraints and worsening price pressures persist
amid Ukraine war and China lockdowns
Sentiment amongst private sector firms continues to deteriorate
in April despite business activity growth
Private sector output rose across Japan and Australia in April
as easing COVID-19 disruptions domestically supported growth of
business activity. That said, external developments including the
Ukraine war and COVID-19 restrictions in China added to supply
chain issues, leading to longer lead times and higher price
pressures for firms in both Japan and Australia. Concerns over
burgeoning inflationary pressures on businesses were also often
highlighted by companies in both countries, leading to another drop
in business confidence at the start of the second quarter.
Japan and Australia private sector output rise as
COVID-19 disruptions ease domestically
The latest flash PMI data showed Japan's private sector activity
expanding for a second straight month and at the fastest pace since
December 2021. The au Jibun Bank Flash Japan Composite PMI
(compiled by S&P Global) rose to 50.9 in April from 50.3 in
March. Both manufacturing and service sectors recorded modest
growth in April, the latter clocking its first expansion in four
months. A decline in COVID-19 cases alongside the lifting of
restrictions previously in March enabled business activity to
improve. That said, manufacturing sector output growth slowed
according to the latest readings, with anecdotal evidence pointing
to persistent supply disruptions affecting production.
Meanwhile the S&P Global Flash Australia Composite PMI rose
to 56.2 in April from 55.1 in March, indicating the fastest rate of
expansion in two months. Output expansion across both the
manufacturing and services sector accelerated on the back of
improvements in demand conditions. Overall new export orders
notably rose for the first time in four months with service
providers benefitting in particular from the reopening of
borders.
S&P Global Flash Composite PMI
Manufacturing and services output
Supply issues persist while price pressures remain
severe
On the back of the Ukraine war and COVID-19 disruptions in
China, supply issues continued to mount for firms in both Japan and
Australia. While improvements were seen for some manufacturers'
supplier delivery times, meaning lead times lengthened at a slower
rate on average when compared to March, these were largely
attributed to the easing of COVID-19 disruptions domestically
according to panellists' comments. The bigger picture remained one
of supply shortages and shipping delays persisting to significant
extents.
Manufacturing suppliers' delivery times
As a result, both input costs and selling prices continued to
rise in Japan and Australia. Input price inflation in Australia
notably soared to a fresh record high and Japan saw input costs
rising at a rate second only to the August 2008 record. An array of
items including higher raw materials prices, energy costs and wages
were widely reported to have led to the increase in price pressures
in both manufacturing and services across these APAC economies,
providing early signals that we may have yet to see inflation peak
in these regions even as crude oil prices eased in April.
Furthermore, manufacturers were reported to have acquired inputs at
a faster pace in April in both Japan and Australia, demonstrating
safety stock building behaviour that may further fan the worsening
of price pressures.
Input and output price indices
Inflation and war concerns further weigh on
sentiment
Despite the improvement in business activity growth in April,
confidence amongst firms in both Japan and Australia deteriorated.
The Future Output Index readings in Japan and Australia fell to
eight- and three-month lows respectively in April. Panellists
reported concerns over rising costs and implications of the ongoing
Ukraine war on demand. Furthermore, persistent manpower issues as a
result of COVID-19 disruptions and general supply shortages also
dampened optimism. For Australia, worries over rising interest
rates also weighed on business sentiment.
The trend with the forward-looking future output indices is a
worrying one, given the fact that higher output growth in April had
failed to lift sentiment, hinting at potentially deeper concerns
about future economic activity performance. The good news remains
that domestic COVID-19 conditions have improved in these APAC
economies, which may help to support growth, though an exhaustion
of this pent-up demand may then reveal the extent to which supply
constraints and signs of growing risk aversion are restraining
output.
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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