Private sector output continued to expand across Japan and
Australia according to May flash PMI data, albeit with rate of
growth moving in different directions. While the easing of COVID-19
disruptions in Japan and Australia supported the sustained growth
of services business activity, both countries saw manufacturing
sector trends deteriorate midway into the second quarter amid
heightened supply chain constraints. Issues including the Ukraine
war and COVID-19 lockdowns in mainland China continued to be cited
as contributors to the supply problems.
Japan and Australia’s manufacturing sector performances
deteriorate in May
The latest flash PMI data showed Japan’s private sector activity
expanding for a third 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 51.4 from a final reading of
51.1 in April. Services business activity growth accelerated to the
fastest in five months, supported by the easing of COVID-19 related
restrictions and the diminishing virus impact. Tourism activity
notably improved. On the other hand, manufacturing output expanded
at the softest pace since February as firms linked the
deterioration to heightened supply chain disruptions.
Meanwhile the S&P Global Flash Australia Composite PMI fell
to 52.5 in May from a final reading of 55.9 in April. Although
still a solid rate of expansion, the rate of growth was the slowest
in four months, weighed by a renewed fall in manufacturing
production. Over and above the disruptions from the Ukraine war and
China’s lockdowns, domestic issues including instances of flooding
hampered operations for manufacturers in May. Service sector output
expansion slowed from April but remained at a rate above the series
average to signal strong growth.
S&P Global Flash Composite PMI
Manufacturing and services output
Ukraine war and China lockdowns continue to contribute
to supply delays and higher prices in May
The deterioration of manufacturing sector performance had been
apparent across both Japan and Australia midway into Q2. Common
causes of the persistent supply disruptions including the Ukraine
war and COVID-19 related restrictions in China continued to be
cited by survey respondents, reflecting the grip that these issues
have on manufacturing performance.
Specifically, suppliers’ delivery times lengthened at a faster
rate in Japan even as domestic COVID-19 disruptions eased.
Manufacturers frequently cited both shortages of inputs and
transportation delays linked to the COVID-19 disruptions in China
and the Ukraine war contributing to the poorer vendor performance
Australia likewise saw lead times lengthen again in May.
Although the rate at which suppliers’ delivery times deteriorated
eased from April, it continued to outpace the series average,
outlining the severity of transportation delays that also
contributed to safety stock building inclinations amongst
manufacturers. To a large extent, supply issues – including the
worsening of weather disruptions in May – had been at the root of
the contraction of manufacturing sector output in Australia with
new orders remaining in solid growth.
Manufacturing suppliers’ delivery times
As a result of the supply-demand imbalances, prices continued to
climb at rapid rates in both Australia and Japan’s private sectors.
Overall input costs and output prices rose at the fastest rates on
record in Japan. While the rates of price inflation eased in
Australia, they remain amongst the fastest on record.
Input and output price indices
Business sentiment remains positive, but firms
concerned with rising costs
Overall sentiment about the future in both Japan and Australia
meanwhile remained optimistic in May, according to the flash data
for these APAC economies, indicating positive expectations for
business activity growth in the next 12-months period. That said,
relative to prior months, business confidence in Japan dipped to
the weakest in six months. Anecdotal evidence pointed to concerns
over supply issues and the corresponding rising costs, while some
firms remained worried about lingering COVID-19 effects on
Meanwhile in Australia, business confidence improved from April
amongst private sector firms but remained at a level below the
series average. Concerns similar to their Japanese counterparts had
been outlined. Moreover, worries over the impact of rising interest
rates, an issue affecting many other APAC economies, had also been
detailed by Australia firms. This is an item worth watching with
the trend of slowing growth and rising costs apparent in May and
could be made more pronounced by the mixture of exogeneous shock to
prices and central bank reactions towards rising inflationary
Future output indices
Jingyi Pan, Economics Associate Director, S&P Global
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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.
This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.