3 days ago
India shines while Asian manufacturing falters amid tariff turmoil
New Delhi: Manufacturing activity across most of Asia's export-driven economies faltered or saw only marginal improvement in June, as global trade tensions—exacerbated by a fresh wave of US tariffs—continued to weigh on sentiment. In this gloomy landscape, India stood out as a rare bright spot.
Every major Asian economy that ran a trade surplus with the US last year saw factory output either contract or eke out a tepid rebound last month. That includes China, Vietnam, South Korea, Japan, and Malaysia—economies heavily reliant on American demand. The tariff freeze announced by President Donald Trump on 2 April is set to lapse on 9 July, casting further uncertainty over Asia's near-term export outlook.
China's manufacturing sector, the region's bellwether, offered a glimmer of hope as the Caixin General Manufacturing Purchasing Managers' Index (PMI) rose to 50.4 in June from 48.3 in May—its highest reading since March and a return to expansionary territory. Still, the recovery remains fragile: over the past year, factory activity in China has swung between weak growth and contraction.
Vietnam's PMI fell for a third straight month to 48.9 in June, while South Korea and Malaysia both reported sub-50 readings despite slight upticks, indicating continued contraction. Japan's data also showed lacklustre activity.
In stark contrast, India's manufacturing sector continued to gather steam. The HSBC India Manufacturing PMI, compiled by S&P Global, rose to 58.4 in June, up from 57.6 in May, marking a 14-month high. This strength was underpinned by solid growth in output, new orders, and employment—even as the global trade backdrop remains shaky.
India's performance stands out not just in momentum but in context.
While China, Vietnam, South Korea, Japan, and Malaysia posted trade surpluses of $295.4 billion, $123.5 billion, $66 billion, $68.5 billion, and $24.8 billion respectively with the US in calendar year 2024, India's surplus was far smaller at $45.7 billion, according to US Trade Representative data. That makes India relatively less exposed to the tariff blowback and explains some of its resilience.
'The tariff war seems to have become a protracted affair, engendering structural changes in its wake as optimism of post-Cold War multilateralism finally dies down,' SBI Capital Markets said in its June Ecocapsule report.
'India seems attractively positioned, with fiscal and monetary policy playing a critical role in navigating these generational changes,' the report added.
Yet the picture isn't uniformly bright.
India's industrial production growth slipped to 1.2% in May, the slowest in nine months, as manufacturing momentum weakened and mining and electricity output contracted. That's a sharp contrast from the 6.3% expansion recorded in May 2023. While April's figure was revised upward to 2.6%, it still underlines ongoing strain in core sectors.
Meanwhile, Moody's Ratings last week downgraded its outlook on sovereign creditworthiness in Asia-Pacific to negative, citing escalating trade policy uncertainty. The agency noted that export-heavy economies in the region—including China, Taiwan, South Korea, Thailand, Malaysia, and Vietnam—face rising cyclical and structural credit risks due to the tariff shock.
'Many export-reliant APAC economies were hit with very high US tariffs in April,' Moody's said. 'Policy uncertainty is challenging investment decisions and disrupting trade. We now expect the tariff shock to lead to lower economic growth in 2025 and 2026 than previously forecast.'
To be sure, sector outlooks are distinct from rating outlooks, which, in addition to sector dynamics, also reflect issuers' specific characteristics and actions.
