S&P Global data released on Wednesday showed that manufacturing activity expanded across most of Asia in March, with economic activity improving in South Korea, Malaysia, and Thailand, while other economies were impacted by energy supply disruptions—driven by the US-Israel conflict with Iran—which pushed up oil prices.
The conflict appeared to affect activity in Vietnam, Indonesia, and Taiwan, where readings slowed compared to February but remained above the 50-point threshold separating expansion from contraction. Thailand led the region with a reading of 54.1, while Malaysia returned to expansion territory after contracting the previous month. The March report marks the first full month of manufacturing PMI data since the outbreak and subsequent escalation of the US-Israel war with Iran on February 28, which disrupted shipping through the critical oil transport channel of the Strait of Hormuz. The conflict has pushed oil prices above $100 per barrel, raising the risk of resurgent inflationary pressures.
"The initial signs of the Middle East war are evident in ASEAN economies," Maryam Baluch, an economist at S&P Global Market Intelligence, said in a statement. "The region's outlook remains uncertain and will be influenced by the intensity and duration of the conflict in the Middle East." However, overall, Asia remains vulnerable to spillover effects from external shocks if global growth slows. Factories in the region that rely on crude oil or petroleum-derived products as raw materials are already struggling with higher costs. Asian governments are preparing for worst-case energy scenarios, which could include prolonged and severe supply disruptions. South Korea established an emergency economic task force to prepare urgently for adverse conditions. The Philippines declared a state of national emergency. Japan is reviewing its entire supply chain for petroleum-related products, while Indian Prime Minister Narendra Modi warned that the war could pose unprecedented challenges to the country.