GLOBAL ECONOMY-Fears of global slowdown cloud outlook for Asian factories

By Leika Kihara

TOKYO, July 22 (Reuters)Worries over a global slowdown are clouding recovery prospects in Asia, with manufacturing growth slowing in Japan and Australia, keeping pressure on policymakers to prop up their economies while tightening monetary policy to fight inflation.

Japan’s manufacturing activity grew at the slowest pace in 10 months in July, the Purchasing Managers’ Index (PMI) survey showed on Friday, boding ill for an economy struggling to shake off the wounds of the pandemic.

Factory activity also slowed in Australia, with the index falling to 55.7 in July from 56.2 in June, a separate survey showed on Friday.

Surveys point to affected manufacturers suffering from supply constraints, rising raw material costs and slowing global demand – all factors flagged by the Bank of Japan as among the top risks to the country’s economic recovery. .

“The July PMIs suggest that the manufacturing sector is slowing as demand weakens, while the latest COVID-19 begins to hit the services sector,” Marcel Thieliant, senior Japanese economist at Capital Economics, said. of the Japanese PMI.

“Although this index has never fallen as much as in other advanced economies, it also does not show the strong improvement seen elsewhere.”

PMI surveys for Britain, the euro zone and the United States are due out later on Friday.

Soaring inflation, driven by Russia’s war in Ukraine, has forced central banks around the world to tighten monetary policy, even at the cost of cooling their economies.

Despite the economic pain of war in Ukraine, the European Central Bank on Thursday raised interest rates for the first time in 11 years, as worries about runaway inflation outweighed worries about growth.

The Federal Reserve’s aggressive rate hike plans have stoked market concerns about a recession in the United States. Many Asian central banks have also found themselves scrambling to catch up with their tightening policy to keep inflation under control and prevent their currencies from depreciating too much.

China and Japan remain exceptions in maintaining loose monetary policy, a sign that their economies – the world’s second and third largest – lack the strength to offset weaknesses in other parts of the globe.

China’s economic growth slowed sharply in the second quarter, weighed down by widespread COVID lockdowns and indicating continued pressure over the coming months due to a darkening global outlook.

The slowdown in the world’s second-largest economy, along with the fallout from aggressive central bank tightening, forced the Asian Development Bank (ADB) to revise down its growth forecast for the region on Thursday.

(Reporting by Leika Kihara; Editing by Sam Holmes)

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