Published by Global Banking & Finance Review®
Posted on June 2, 2025
5 min readLast updated: January 23, 2026
European manufacturing stabilizes in May, while US and Asia struggle with tariffs and weak demand, affecting global production outlook.
By Jonathan Cable, Leika Kihara and Lucia Mutikani
LONDON/TOKYO/WASHINGTON (Reuters) -European manufacturing took another step towards stabilisation in May but U.S. activity contracted for a third straight month and Asian factory activity shrank as soft demand in China and U.S. tariffs took a heavy toll, surveys showed, highlighting the darkening outlook for the once fast-growing region.
U.S. President Donald Trump's flip-flopping on trade tariffs - including Friday's surprise doubling of levies on imported steel and aluminum - has left firms unsure about where the charges will settle.
Still, production increased for a third consecutive month in Europe's common currency area, supported by a near-stabilisation in demand.
The HCOB Eurozone Manufacturing Purchasing Managers' Index rose to 49.4 in May from 49.0 in April, marking a 33-month high and in line with a preliminary estimate but remaining below the 50.0 threshold separating growth from contraction.
France's PMI moved closer to breakeven at 49.8, a 28-month high. But Europe's largest economy, Germany, remained the weakest performer among the big euro zone members with a PMI of 48.3.
"I wouldn't read too much into the numbers today. A bit up for France, a bit down for Germany," said Salomon Fiedler at Bernberg.
"For the euro zone as a whole we are stable."
In Britain, outside the European Union, the downturn was less steep than first feared in May but output, orders and jobs continued to drop as companies cited recent tax hikes and Trump's tariffs.
U.S. DOLDRUMS
U.S. manufacturing activity fell to a six-month low in May and suppliers took longer to deliver inputs amid tariffs, potentially signaling looming shortages of some goods.
The Institute for Supply Management (ISM) said on Monday that its manufacturing PMI edged down to 48.5, the lowest since November, from 48.7 in April. Manufacturing accounts for 10.2% of the U.S. economy.
The PMI, however, remains above the 42.3 level that the ISM says over time indicates an expansion of the overall economy.
Economists polled by Reuters had forecast the PMI rising to 49.3. The survey suggested manufacturing, which is heavily reliant on imported raw materials, had not benefited from the de-escalation in trade tensions between Trump's administration and China.
The ISM survey's supplier deliveries index increased to 56.1 - the highest in nearly three years - from 55.2 in April. A reading above 50 indicates slower deliveries. A lengthening in suppliers' delivery times is normally associated with a strong economy. But in this case slower supplier deliveries likely indicated bottlenecks in supply chains related to tariffs.
The supplier delivery situation also deteriorated in Canada. S&P Global's Canadian manufacturing PMI report showed average lead times for the delivery of inputs lengthened for an 11th straight month, citing port congestion and challenges at customs.
ASIA STRUGGLES
Trade-reliant Japan and South Korea continued to see manufacturing activity contract in May as Trump's automobile tariffs cloud the outlook for exports.
Adding to the gloom, an official survey on Saturday showed China's manufacturing activity shrank in May for a second month in a sign of weakness in the world's second-largest economy.
With many Asian economies making little progress in trade negotiations with the U.S., uncertainty will likely keep companies from boosting production or spending, analysts said.
"It's hard to expect a pick-up in Asia's manufacturing activity any time soon with countries in the region slapped with quite high 'reciprocal' tariffs," said Toru Nishihama, chief emerging market economist at Dai-ichi Life Research Institute.
"With domestic demand weak, China is flooding Asia with cheap exports, which is also putting deflationary pressure on the region's economies," he said.
Japan's final au Jibun Bank manufacturing PMI stood at 49.4 in May, up from April but stayed below 50.0 for an 11th successive month.
The PMI for South Korea, Asia's fourth-largest economy, stood at 47.7 in May, staying below 50 for a fourth month due to frail demand and the hit from U.S. tariffs, S&P Global's survey showed.
Both Japan and South Korea saw their economies contract last quarter, as Trump's tariffs and uncertainty over U.S. trade policy weighed on exports and corporate activity.
India's manufacturing growth slowed to a three-month low in May as demand softened amid price pressures and geopolitical tensions, a survey showed on Monday.
There is little sign conditions will improve.
On Friday, Trump said China had violated a two-way deal to scale back tariffs, whereas China contended it had maintained communication on trade with the United States. Trump also announced a doubling of worldwide steel and aluminium tariffs to 50%, once again rattling international trade.
Japan and the U.S. on Friday agreed to hold another round of trade talks ahead of the G7 summit in June, but Japan's top tariff negotiator said no deal would be reached without concessions on all U.S. tariffs, including on automobiles.
Vietnam, Indonesia and Taiwan also saw factory activity contract in May, their surveys showed.
(Additional reporting by Fergal Smith, Editing by Christopher Cushing and Chizu Nomiyama)
European manufacturing has shown signs of stabilization, with the HCOB Eurozone Manufacturing PMI rising to 49.4 in May, indicating a slight improvement in demand.
U.S. manufacturing activity fell to a six-month low in May, with the PMI dropping to 48.5, indicating a contraction for the third consecutive month.
Asian economies, particularly Japan and South Korea, are struggling with manufacturing contractions due to high tariffs and weak domestic demand, impacting their export outlook.
Tariffs have caused suppliers to take longer to deliver inputs, potentially leading to shortages of goods, as seen in both the U.S. and Canada.
The outlook for manufacturing in Asia remains bleak, with analysts suggesting that uncertainty from ongoing trade negotiations will hinder production and spending.
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