Global Market: AI hardware demand powers Asia’s manufacturing growth in August

Surging global demand for artificial intelligence hardware helped sustain manufacturing activity across several Asian economies in August, offering a boost to the region’s export outlook even as the prolonged Middle East conflict raised concerns over higher costs and economic uncertainty, Reuters reported.

Factory activity expanded in China, Japan and South Korea during the month, with strong demand for semiconductors, computers and other AI-related products helping offset pressure from rising input costs, according to private business surveys released on Tuesday and reported by Reuters.

China factory activity strengthens

China’s RatingDog China General Manufacturing PMI, compiled by S&P Global, rose to 51.5 in August from 50.9 in July. The reading remained above the 50 threshold that separates expansion from contraction and exceeded the 51 forecast from economists surveyed by Reuters.

The improvement added to signs that AI-related demand is helping stabilise parts of China’s industrial sector. However, a separate official survey showed that overall manufacturing activity remained in contraction territory, highlighting the uneven nature of the country’s economic recovery.

The divergence between the private and official surveys suggests that export-oriented and technology-related manufacturers may be benefiting more strongly from the AI-driven demand cycle than the broader industrial economy.

Japan sees strongest manufacturing growth in months
Japan’s manufacturing sector also gained momentum in August, supported by a sharp increase in new business linked to semiconductors and AI-related products.

The S&P Global Japan Manufacturing PMI climbed to 54.9 in August from 54.5 in July, reaching its highest level since April. It also marked the eighth consecutive month of manufacturing expansion.

According to Reuters, the increase in new orders was particularly encouraging as demand for AI-related equipment continues to support Japan’s technology and electronics supply chains.

South Korea benefits from export boom
South Korea’s manufacturing sector expanded for a ninth consecutive month, although the pace of growth moderated.

The country’s PMI fell to 52.3 in August from 53.1 in July, but remained comfortably above the 50 mark. Strong export demand continued to underpin factory activity, particularly in the semiconductor sector.

Separate trade data showed South Korean exports surged 68.7% in August from a year earlier, extending their growth streak to 15 consecutive months. Reuters reported that the figures reflected continued strength in AI and semiconductor-related demand.

The export surge provides an important tailwind for South Korea’s manufacturing sector, where chipmakers remain major beneficiaries of the global investment boom in AI infrastructure.

Taiwan, Malaysia and Philippines also expand
Manufacturing activity also remained in expansion territory in Taiwan, Malaysia and the Philippines, although the pace varied across economies.

Taiwan’s PMI eased to 54.7 in August from 55.1 in July, while Malaysia’s index slipped to 50.2 from 50.7. Both remained above the 50 threshold.

The Philippines recorded the strongest improvement among the economies covered by the surveys. Its PMI jumped to 54.9 in August from 51.8 in July, pointing to a significant acceleration in factory activity.

Indonesia, however, moved in the opposite direction, with its PMI falling to 49.8 from 50.2 in July, returning the sector to contraction.

Middle East conflict remains a key risk
Despite the encouraging manufacturing data, Asia’s export-dependent economies face growing risks from geopolitical tensions and higher production costs.

The prolonged Middle East conflict has pushed up energy and transportation costs, raising the prospect of renewed inflationary pressure for manufacturers. Higher oil prices could weigh on corporate margins and consumer demand while complicating monetary policy decisions across the region.

For now, however, the strength of AI-related demand is helping cushion Asia’s manufacturing sector. As reported by Reuters, robust demand for semiconductors, computers and other AI hardware is providing an important source of support for exporters even as geopolitical risks cloud the broader economic outlook.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)