TOKYO (REUTERS) – The resurgence of Covid-19 cases in Asia due to the highly infectious Delta variant disrupted supply chains across the region, slowing manufacturing growth in Japan and South Korea, surveys showed on Wednesday (Sept 1).

The final au Jibun Bank Japan Manufacturing Purchasing Managers’ Index (PMI) in August eased to 52.7 on a seasonally adjusted basis from 53.0 in the previous month, as sinking overseas orders went into contraction for the first time in seven months.

“A sharp rise in Covid-19 cases in South-east Asia was among the key factors listed by Japanese manufacturers for the easing in demand,” said Usamah Bhatti, economist at IHS Markit, which compiled the survey.

“Severe supply chain disruption partly caused by pandemic restrictions and raw material shortages remained a dampener on production and orders.”

The PMI survey showed that overall new orders expanded at their slowest pace since January, while new export orders posted their first contraction since that month.

Overall output saw a rise, but its pace eased from the prior month as the intensifying health crisis and a lack of raw materials weighed on production.

The survey also showed output for intermediate goods grew at their fastest pace in four-and-a-half years, offsetting weaker demand for investment and consumer products.

Input prices maintained a sustained increase, while companies’ expectations for the year ahead remained firm, though they eased to the softest since January.

“Though still optimistic, Japanese goods producers were wary of the continued impact of the pandemic and supply chain disruption,” said Mr Bhatti.

In South Korea, factory activity grew at a slower pace in August, as output contracted for the first time in 12 months and demand eased.

The IHS Markit PMI for August stood at 51.2, falling from 53.0 in July but staying above the 50 threshold, which indicates expansion in activity, for an 11th straight month.

“A renewed rise in virus infections and severe, sustained supply chain disruptions, notably in the key semiconductor market, dampened operating conditions,” said Mr Bhatti.

That resulted in a contraction in output levels, while the virus resurgence across the wider region partially offset solid demand from key export markets such as the United States and Japan, he added.

Total new orders rose further last month, but at the softest pace in 10 months, while export orders growth also eased as the highly contagious Delta variant and related curbs dented global demand.

Still, firms were seen raising staffing levels for another month in preparation of incoming orders in the second half of the year.

Meanwhile, the survey signalled further rises in average cost burdens at South Korean manufacturers on continued raw material shortages, which led to higher output prices.

“Firms commonly noted that global shortages of raw materials and freight capacity, notably in the semiconductor market had led to weaker readings across the majority of indices,” Mr Bhatti said.

“Yet businesses remained confident that this would pass, and activity would rise over the next 12 months.”

The sub-index for future output, which indicates business confidence, rose to 61.2 in August from 59.5 in July, on hopes of a wider economic recovery from the pandemic and that supply chain bottlenecks would ease.