Global factory activity has mixed performance in June, PMIs show

Global factory activity has mixed performance in June, PMIs show

By Jonathan Cable and Leika Kihara

LONDON/TOKYO (Reuters) -Manufacturing activity in Europe suffered a setback last month but Asian factories enjoyed solid momentum, offering policymakers some hope the region can weather the hit from soft Chinese demand, surveys showed.

The downturn in Europe was widespread, with Italy the only big player not to see a fall in its Purchasing Managers’ Index (PMI) despite manufacturers largely cutting prices.

HCOB’s final euro zone manufacturing PMI, compiled by S&P Global, fell to 45.8 in June from May’s 47.3. It has been below the 50 mark separating growth from contraction for two years.

“What looks like the green shoots of recovery seem to be diminishing. We can’t take a recovery for granted,” said George Moran at Nomura.

Germany’s factory sector, which accounts for about a fifth of Europe’s biggest economy, experienced a retreat, while in France the manufacturing recession deepened.

France’s far-right National Rally party scored an historic win in parliamentary elections on Sunday, stoking risks of a crisis in the euro area even as other political parties rushed to build a united front to block its path to power.

In Britain, which holds a national election on Thursday, manufacturing growth slipped in June from May’s 22-month high as ongoing disruption to shipping in the Red Sea led to lower demand from overseas customers.

A euro zone index measuring output, which feeds into a composite PMI due on Wednesday that is seen as a good gauge of economic health, sank from May’s 49.3 to a six-month low of 46.1, albeit just ahead of the 46.0 flash estimate.

A new orders index in the currency union dropped to 44.4 from 47.3, despite factories cutting prices charged for a fourteenth month.

WEAK YEN BOOSTS IMPORT COSTS

But cost pressures weighed on manufacturers in countries like Japan, where a weak yen is boosting the price companies pay for fuel and raw material imports.

China’s Caixin/S&P Global manufacturing PMI rose to 51.8 in June from 51.7. It marked the fastest clip in more than three years and exceeded market forecasts of 51.2.

The private-sector reading followed official PMI data on Sunday showing China’s manufacturing activity fell for a second month in June and services activity slid to a five-month low.

The surveys demonstrate how Chinese firms are ramping up production despite weak domestic demand, which Beijing has failed to reverse with a rescue package for an ailing property sector.

In a sign Asia is benefiting from solid global demand, South Korea’s factory activity growth quickened in June to the fastest in 26 months on surging new orders, its PMI showed.

Factory activity also expanded in June at a faster pace than in May in Vietnam and Taiwan, other surveys showed.

Another strong month of data provides further evidence that global industrial activity and trade are picking up,” said Joe Hayes, principal economist at S&P Global Market Intelligence, on South Korea’s factory activity.

Viewed as a bellwether for exports due to its integration in supply chains for key intermediate goods like batteries and semiconductors, South Korean manufacturing output and orders often provide leading signals for trends more broadly.

Japan’s factory activity expanded in June, but at a slower pace than in May, as companies struggled with rising costs due to the weak yen.

The final au Jibun Bank Japan manufacturing PMI was 50.0, on the break-even line, after a brief improvement to 50.4 in May.

A PMI gauging Japanese firms’ future output expectations rose to a six-month high thanks to a better medium-term outlook for the car and chip sectors.

Activity in India’s manufacturing sector rebounded last month as output increased on robust demand, leading to the fastest rate of hiring in over 19 years.

(Reporting by Leika Kihara and Jonathan Cable; Editing by Sonali Paul and Christina Fincher)