DBT Bureau
Pune, 2 April 2026
Factory activity across several Asian economies slowed in March as rising fuel costs and geopolitical tensions from the Iran conflict weighed on business conditions. While China’s manufacturing sector remained in expansion, growth moderated amid rising input costs and supply chain disruptions. Countries like Indonesia, Vietnam, Japan, and Taiwan reported weaker PMI readings, reflecting mounting economic pressure. Higher oil prices, driven by disruptions in the Strait of Hormuz, have increased inflation risks across the region. Meanwhile, a stronger US dollar has further strained emerging Asian currencies, complicating policy responses. South Korea stood out as an exception with robust factory growth.
Key Highlights
- Asian factory activity slows amid rising oil prices and war risks.
- China PMI eases to 50.8, signaling slower expansion.
- Japan, Indonesia, Vietnam report weaker manufacturing growth.
- Strait of Hormuz disruption fuels inflation and energy costs.
- South Korea outperforms with strongest growth in four years.
Manufacturing activity across Asia showed signs of slowing in March, as rising energy costs and escalating geopolitical tensions linked to the Iran conflict weighed heavily on business sentiment. The surge in crude oil prices, driven by disruptions in the Strait of Hormuz—a key global energy chokepoint—has intensified inflationary pressures across the region, posing challenges for policymakers.
China’s manufacturing sector continued to expand for the fourth consecutive month; however, the pace of growth moderated. The Caixin/S&P Global Manufacturing PMI fell to 50.8 in March from 52.1 in February, reflecting softer demand conditions alongside rising input costs and ongoing supply chain constraints. The data indicates that while activity remains in expansion territory, underlying momentum is weakening.
Across the broader region, manufacturing conditions deteriorated in several key economies. Japan’s factory activity slowed, with its PMI declining to 51.6 amid a sharp rise in input prices, marking the fastest increase since August 2024. Similarly, Indonesia and Vietnam recorded notable declines in PMI readings, highlighting the widespread impact of higher fuel costs and global uncertainty on industrial output.
The economic strain is particularly pronounced in Asia, which relies heavily on oil imports routed through the Strait of Hormuz. With nearly 80% of shipments passing through this corridor, supply disruptions have amplified inflation risks and increased production costs for manufacturers. Additionally, a strengthening US dollar has exerted downward pressure on regional currencies, further complicating monetary policy responses.
In contrast, South Korea emerged as a bright spot, with factory activity expanding at its fastest pace in over four years, supported by strong semiconductor demand and new product cycles.
Rising energy costs and geopolitical tensions are dampening Asia’s manufacturing momentum, with inflation risks mounting, though selective resilience like South Korea highlights uneven regional economic performance.
Source: Kedia Advisory
