TOKYO — Asia factory activity slowed in March across much of the region as the Iran war lifted fuel and freight costs, even as China stayed in expansion and South Korea notched its strongest manufacturing growth in more than four years, April 1, 2026. The squeeze flowed through energy, shipping and imported raw-material bills as disruptions around the Strait of Hormuz hit a region that depends heavily on Middle East oil, while semiconductor demand kept cushioning parts of Northeast Asia.
The breadth of the slowdown matters. In regional factory surveys, Japan’s PMI eased to 51.6, Indonesia’s fell to 50.1 and Vietnam’s slowed to 51.2, while China stayed above the 50 line and South Korea remained the outlier. That matters because Asia buys about 80% of the oil shipped through the Strait of Hormuz, leaving manufacturers especially exposed when energy and logistics costs jump.
Asia factory activity is splitting along energy exposure and chip demand
China still looks more resilient than many of its neighbors. An official PMI report showed manufacturing returned to 50.4 in March, the strongest reading in a year. A separate private-sector survey showed growth continued for a fourth straight month, though the gauge slipped to 50.8 from 52.1 in February as input costs rose at the fastest pace since March 2022 and factories raised selling prices at the quickest pace in four years.
South Korea is the clearest exception. March export data showed semiconductor shipments jumped 151.4% from a year earlier to a record $32.83 billion, helping total exports rise 48.3% and reinforcing the same-day PMI signal that chip demand and new product launches are overpowering softer Middle East orders for now. Yet the same report also showed how narrow that cushion is: imports rose 13.2% as higher oil prices and Hormuz disruptions fed through the energy bill, while shipments to the Middle East sank 49.1%.
The regional cost squeeze is unlikely to fade quickly. A Reuters poll on oil price forecasts showed analysts raised their 2026 Brent view to $82.85 a barrel from $63.85 a month earlier, the biggest upward revision in the history of that monthly survey. For factories, that is not just a fuel story. It lifts freight, petrochemical and metals costs, ties up more working capital and makes it harder for producers without pricing power to defend margins.
What the next quarter may look like
Japan offers the clearest caution sign. Higher energy prices, a weak yen and labor shortages pushed input inflation to its fastest pace since August 2024, and firms turned more cautious on hiring and purchasing. China is better placed because both official and private PMIs stayed above 50, but even there delivery times worsened. The region, in other words, is not slipping into a synchronized manufacturing downturn yet; it is moving into a more uneven phase where tech sectors can still expand while energy-sensitive producers lose momentum.
Asia factory activity had been recovering before the latest shock
March should therefore be read as an interruption to a rebound, not a clean break from it. Regional surveys in January had shown better demand lifting exporters across Asia. China then followed with a February private PMI surge that marked its fastest expansion since late 2020. Even so, the rebound had fragile foundations. As factory surveys last October showed, Asian manufacturers were only recently climbing out of a period marked by soft U.S. and China demand, tariff pressure and widespread weakness across several export-heavy economies.
That backdrop makes the current divergence more important than the headline slowdown. China still has policy support and a domestic production recovery, while South Korea has an AI-driven chip cycle at its back. Much of the rest of the region does not have the same buffer. If oil stays elevated and shipping disruptions persist through April, the gap between tech-led winners and energy-exposed manufacturers is likely to widen.
For central banks, the setup is awkward: softer factory breadth would usually argue for easier policy, but war-driven inflation makes that harder. For companies, the message is more immediate. The next phase of Asia’s manufacturing story will depend less on whether orders exist and more on who can absorb higher costs without losing them.
