Global factory activity is in a downturn as China and the slowdown in growth take their toll

• Eurozone factory activity falls sharply in July
• China’s private purchasing managers’ index for July marks its first decline since April
• Factory activity in Japan, South Korea contract
• Activity in US and Canada stabilizes, Mexico hits 7-year high

LONDON/TOKYO/WASHINGTON, Aug 1 (Reuters) – Global factory activity remained in a slump in July, private surveys showed on Tuesday. A sign that growth is slowing and weakness in China is weighing on the global economy, although the picture in the Americas was significantly less gloomy than elsewhere.

The downturn highlighted the dilemma for policymakers, who must embark on aggressive monetary tightening cycles to keep inflation in check while trying to avoid potential recessions.

S&P Global’s measure of global manufacturing activity held steady at 48.7 in July, hitting its lowest level since June 2020, with factory production and new orders sub-indices both falling to six-month lows. A value below 50 indicates a decline in activity.

A Purchasing Managers’ Index (PMI) covering the whole euro zone showed that manufacturing activity fell at a rapid rate in July since COVID had a firm grip on the world as demand collapsed even as factories slashed prices.

Germany, Europe’s largest economy, has experienced significant weakness, while France and Italy, the eurozone’s second and third largest economies, have also seen significant deteriorations since June.

The final HCOB manufacturing purchasing managers’ index, compiled by S&P Global, fell to 42.7 in July from 43.4 in June, the lowest reading since May 2020 and in line with a provisional reading.

An index measuring economic output, which feeds into a composite PMI to be released on Thursday, which is considered a good indicator of economic health, fell to 42.7 from 44.2, a low not seen in more than three years became.

Data showed that the downturn in Germany’s manufacturing sector deepened early in the third quarter, as manufacturers of goods saw sharper falls in new orders.

Meanwhile, France’s factory sector continued to contract in July, although the downturn was not quite as severe as initially forecast.

“Today’s PMI results are an indicator of the ongoing uncertainty currently facing the eurozone manufacturing sector,” said Thomas Rinn, global head of industry at Accenture.

“Demand is in a difficult phase. Declining production coupled with the knock-on effects of inflation, labor shortages and changing customer preferences continue to put pressure on companies.”

In the UK, outside the European Union, factory production contracted at its fastest pace in seven months in July, impacted by higher interest rates and fewer new orders, despite easing price pressures.

ASIAN VARIETY

Japan, South Korea, Taiwan and Vietnam saw manufacturing activity slow in July, surveys showed, highlighting the pressure sluggish Chinese demand is putting on the region.

Workers walk on a street in Beijing, China July 14, 2023. REUTERS/Thomas Peter/File Photo

China’s Caixin/S&P global manufacturing PMI fell to 49.2 in July from 50.5 in June, missing analysts’ forecast of 50.3 and marking the first drop in activity since April.

The data coincided with the government’s official PMI reading on Monday, posing challenges for policymakers looking to reignite China’s post-COVID recovery.

“Manufacturing PMIs remained in bearish territory in most of EM Asia last month and the underlying data point to further weakness,” said Shivaan Tandon, EM Asia economist at Capital Economics.

“Declining orders, bleak employment prospects and high inventories point to subdued factory activity in the coming months.”

Japan’s final au Jibun Bank PMI fell to 49.6 in July from 49.8 in June, on weak domestic and external demand.

South Korea’s PMI came in at 49.4 in July, up from 47.8 in June, but remained below the 50 line, an S&P Global survey showed.

Taiwan’s manufacturing PMI fell to 44.1 in July from 44.8 in June, while Vietnam’s index rose to 48.7 from 46.2, surveys showed.

In India, manufacturing activity growth slowed for the second straight month, but the pace of expansion remained healthy and exceeded expectations.

Asia is one of the few bright spots in the global economy, even if the economic slowdown in China is clouding the outlook.

In its revised forecasts released in July, the International Monetary Fund forecast that emerging Asia’s economic growth will accelerate to 5.3% this year, from 4.5% in 2022. He expects China’s economy to grow 5.2% this year, after a 3.0% increase in 2022.

RELATIVE STABILITY IN AMERICA

In contrast to Asia and Europe, factory activity was more stable in the US, Canada, Brazil and Mexico. Indeed, activity in Mexico bucked the broader downtrend, rising to a seven-year high on improvements in both production and orders.

Meanwhile, US manufacturing appeared to be stabilizing at weaker levels amid a gradual improvement in new orders, but factory employment fell to its lowest level in three years, suggesting layoffs were picking up.

The Institute for Supply Management (ISM) said on Tuesday that its manufacturing PMI rose to 46.4 last month from 46.0 in June, the lowest reading since May 2020. It was the ninth straight month of decline.

PMI indicators in Canada and Brazil both moved closer to the break-even level of 50. Canada’s PMI came in at 49.6, with manufacturing picking up slightly and hitting the highest rate since February. In Brazil, activity contracted for a ninth straight month, but the country’s PMI was 47.8, its highest since February.

Reporting by Leika Kihara, Jonathan Cable, Lucia Mutikani, Dan Burns and Fergal Smith; Edited by Sonali Paul, Susan Fenton and Paul Simao

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