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Global factories struggle for momentum amid patchy demand
Global Banking & Finance Review®
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By Jonathan Cable and Leika Kihara
LONDON/TOKYO (Reuters) -Sluggish global demand deepened the decline in manufacturing activity across Europe and remained a major challenge for many of Asia’s big exporters, business surveys for May showed on Thursday.
Purchasing managers’ indexes (PMIs) for the euro zone moved further below breakeven despite factories cutting prices for the first time since September 2020. In Britain, output fell for a third month in a row and new orders declined at the fastest pace in four.
And while PMIs from China and Japan showed swings in factory activity to growth last month, they stood in contrast to weak indicators from South Korea, Vietnam and Taiwan, where declines continued.
Compiled by S&P Global, Thursday’s HCOB final manufacturing PMI for the euro zone fell to 44.8 from April’s 45.8, just ahead of a preliminary reading of 44.6 but below the 50 mark separating growth from contraction for an 11th consecutive month.
An index measuring output, which feeds into a composite PMI due on Monday that is seen as a good guide to economic health, dropped to a six-month low of 46.4 from 48.5.
“The weakness in demand in the manufacturing sector, which has become increasingly evident since the beginning of the year in falling PMI readings, has now led the surveyed companies to reduce their production for the second month in a row,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.
“The decline in new orders from home and abroad signals that the weakness in output is likely to persist for several more months.”
The decline was broad based with activity falling in the currency union’s four biggest economies – Germany, France, Italy and Spain.
Factories cutting prices as the costs of production dropped at the fastest pace since February 2016 failed to stem a fall in demand.
That price drop will likely be welcomed by policymakers at the European Central Bank who have failed so far to get inflation back to target despite embarking on their most aggressive policy-tightening programme in the Bank’s history.
Inflation was 6.1% last month, over three times the ECB’s goal, official data showed on Thursday.
The patchy set of Asian PMIs pointed to an uneven recovery from the pandemic, particularly in China, and clouds the outlook for growth in the region.
“The PMI surveys suggest that China’s economic recovery was still ongoing in May, albeit at a slower pace. Waning fiscal support weighed on construction activity,” said Julian Evans-Pritchard, analyst at Capital Economics.
“But manufacturing output ticked up and the service sector is still seeing decent gains, suggesting that Q2 GDP growth may not be as bad as many fear.”
China’s Caixin/S&P Global manufacturing PMI rose to 50.9 in May from 49.5 in April.
The reading surpassed expectations of 49.5 in a Reuters poll, a stark contrast to a deeper contraction in activity seen in the official PMI released on Wednesday.
But China’s business confidence for the coming 12 months fell to a seven-month low amid concerns over global economic prospects, the Caixin survey showed.
Japan’s final au Jibun Bank PMI rose to 50.6 in May, its first reading above the 50.0 threshold since October, as the economy’s delayed re-opening from pandemic curbs lifted demand.
However, separate data released on Wednesday showed Japanese factory output unexpectedly fell in April.
Elsewhere in Asia, South Korea’s PMI stood at 48.4 in May, slumping into its longest spell of contractionary readings in 14 years, as slowing global demand hit output and orders.
Vietnam, Malaysia and Taiwan also saw factory activity shrink in May, while that of the Philippines expanded, the surveys showed.
India’s factory activity expanded at the quickest pace since October 2020, a sign strong demand and output were supporting Asia’s third-largest economy.
(Reporting by Jonathan Cable and Leika Kihara; Editing by Sam Holmes and Mark Potter)
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power.
A manufacturing activity index measures the performance of the manufacturing sector, indicating whether it is expanding or contracting.
Business surveys are tools used to gather information from companies about their economic performance, outlook, and conditions.
Economic growth refers to an increase in the production of goods and services in an economy over a period of time.
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