Asia’s factories lose steam as AI glow meets war’s economic chill

Manufacturing activity slowed in China, indicating the drag from Iran war may be offsetting gains from robust global demand for AI chips.

TOKYO – Factory activity across Asia continued to expand in October, but growth slowed in major chip exporters, private surveys showed on Nov 2, suggesting the AI boom may be losing momentum as markets start to question the sector’s profitability.

The data points to growing strains on export-led economies, as prolonged conflict in the Middle East keeps fuel and food prices elevated, hitting consumption and business confidence, even as demand for chips and artificial intelligence-related goods remains resilient.

Manufacturing activity slowed in China, Japan, South Korea and Taiwan, the surveys showed, indicating the drag from the US-Israeli war on Iran may be offsetting the benefits from robust global demand for chips and AI-related goods.

“Strong chip and AI demand had masked soft spots in Asian and global economies. But that’s becoming hard to sustain with the Middle East war dragging on for so long, pushing up fuel and food prices,” said Toru Nishihama, chief emerging market economist at Dai-ichi Life Research Institute in Tokyo.

“High inflation is hurting Asian consumption. Intensifying price competition from China is also weighing on rival exporters like Japan and South Korea,” he said.

The RatingDog China general manufacturing purchasing managers’ index (PMI), compiled by S&P Global, stood at 52 in October, exceeding the 50-mark that separates growth from contraction but falling from 52.1 in September.

The reading followed official data released on Oct 31 showing China’s factory activity shrank in October, marking the third contraction in four months.

“The PMIs suggest that China’s economic activity lost momentum in October following September’s pick-up. Manufacturing softened a touch, but foreign demand still looks resilient,” said Nguyen Hoang Nam, China economist at Capital Economics.

“More worrying was the sharp reversal in construction activity and expectations, suggesting that firms have become less confident that fiscal support will provide a substantial boost over the rest of the year.”

Japan’s PMI eased to 53.3 in October from 54.1 in September, a survey by S&P Global showed, marking the slowest expansion in seven months as output and new orders lost momentum.

South Korea’s factory activity grew in October at the slowest pace in eight months on weaker output and demand, with the PMI falling to 51.3 from 53.9 in September.