Asia factory growth slows as AI-led manufacturing boom loses momentum

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Asia's factory growth slows

Highlights

China's RatingDog General Manufacturing PMI slips to 52.0 in October from 52.1, with Japan, South Korea, and Taiwan also posting slower growth.
Rising energy and food prices linked to the Middle East conflict pressure Asian export economies, challenging prior resilience from strong chip and AI-related demand.
The IMF projects Asia's economic growth at 4.8% in 2026 and 4.4% in 2027, both below the 5.0% expansion expected in 2025.

October PMI data signals slower manufacturing momentum

As reported by Reuters, private purchasing managers' index surveys released on Monday show manufacturing activity across Asia remains in expansion territory in October, but growth slows in several of the region's largest technology and export hubs. The moderation is most visible in China, Japan, South Korea and Taiwan, where factory output and new orders lose some pace even as global demand for chips and AI-related goods stays relatively firm.

China's RatingDog General Manufacturing PMI, compiled by S&P Global, stands at 52.0 in October, down slightly from 52.1 in September, while remaining above the 50 threshold that separates growth from contraction. The reading follows official data released on Saturday showing China's factory activity shrank in October, its third contraction in four months.

Japan's PMI eases to 53.3 in October from 54.1 in September, marking the slowest expansion in seven months. South Korea's PMI falls to 51.3 from 53.9, its weakest growth pace in eight months, while Taiwan's reading declines to 54.9 from 56.7. Elsewhere in the region, Vietnam, Indonesia and Malaysia record faster factory expansion than in the previous month.

Toru Nishihama, chief emerging market economist at Dai-ichi Life Research Institute in Tokyo, says strong chip and AI demand had previously masked softer conditions in Asian and global economies, but that support is becoming harder to sustain as the Middle East conflict drags on and lifts fuel and food prices. Nguyen Hoang Nam, China economist at Capital Economics, says the China PMI figures indicate economic activity loses momentum in October after a September pickup, with construction activity and expectations showing a sharper deterioration.

Energy shock and AI profitability concerns weigh on outlook

The survey results point to rising pressure on Asia's export-led economies as elevated commodity costs hurt consumption and business confidence. The data also suggest that the drag from the U.S.-Israeli war on Iran is increasingly offsetting the benefits from resilient semiconductor and AI-related demand.

Asia has outperformed many other regions because manufacturers benefit from brisk orders for chips and AI-linked goods. But markets are beginning to question the sector's profitability, raising doubts over how long the AI boom can continue to support broader industrial activity.

The International Monetary Fund projects Asia's economic growth to moderate next year and warns of growing risks from the Iran war-induced energy shock and a potential correction in the AI boom. The IMF says it expects Asia's economy to grow 4.8% in 2026 and 4.4% in 2027, above its April projections but still slower than the 5.0% expansion recorded in 2025.

Our earlier article on the WTO’s view of the Middle East war’s impact on trade explained how repeated conflicts and tariff shocks are pushing companies to redesign supply chains and shipping routes in ways that could outlast the fighting. It also highlighted the WTO’s expectation that demand for AI-related products can partly offset disruption to global trade flows, even as the overall outlook remains fragile.

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