General Economy – Global factory output falls amid weak demand

Global factory activity slowed in June, trade surveys showed on Monday, as weak demand in China and Europe clouded the outlook for exporters.

Across the eurozone, output contracted faster than initially thought as continued policy tightening by the European Central Bank weighed on funds, and the pace of decline accelerated as confidence waned in Britain.

In Asia, manufacturing activity rose somewhat in China but contracted in Japan and South Korea, as economic recovery in Asia struggled to keep pace.

Data due later Monday is expected to show further contraction in the US.

“There are no real signs that manufacturing will pick up again this year. Overall, we’re still talking about a negative outlook,” Rory Fennessy, European economist at Oxford Economics, said of the euro zone announcement.

The final euro zone manufacturing purchasing managers’ index (PMI), compiled by S&P Global, fell to 43.4 from 44.8 in May. This is the lowest number since the Covid pandemic gripped the world, below the preliminary reading and further from the 50 mark that separates growth from contraction.

June’s decline was broad-based: Surveys released on Monday showed that factory activity in the eurozone’s four biggest economies shrank last month.

The S&P Global/CIPS UK manufacturing PMI fell to 46.5 from 47.1 in May, the lowest reading of the year and one of the weakest since the 2008-09 financial crisis.

Pain in Asia

Polls in Asia underscore that China’s post-Covid rebound is weaker than expected, where manufacturers are also facing the impact of aggressive US and European tariff hikes.

“Asian factories may have suffered the worst, but activity is slowing as prospects for a strong recovery in China’s economy diminish,” said Toru Nishihama, chief emerging markets economist at Dai-ichi Life Research Institute.

“China is slow to stimulate. The US economy could feel the pain of a big interest rate hike. All these factors make Asian manufacturers gloomy about the outlook.”

China’s Caixin/S&P Global Manufacturing PMI fell to 50.5 in June from 50.9 in May, the private survey found.

The figure followed an official survey on Friday and a further decline in factory activity, further evidence that the world’s No. 2 economy lost momentum in the second quarter.

The effect was felt in Japan, where the final Jibun Bank PMI fell to 49.8 in June, prompting the economy to contract again after growing for the first time in seven months in May.

New orders from overseas customers fell the fastest in four months due to weaker demand in China.

South Korea’s PMI fell to 47.8 in June, extending the decline to a 12th straight month amid sluggish demand in Asia and Europe.

Manufacturing activity also contracted in Taiwan, Vietnam and Malaysia, PMI surveys showed.

There were some bright spots in economic indicators, with India’s manufacturing sector following the trend and expanding at a solid pace in June, albeit at a slower pace than in May, supported by strong demand.

The Bank of Japan’s closely watched Tangan survey found Japanese business sentiment improved in the second quarter as commodity costs rose and the lifting of pandemic restrictions boosted consumption.

Asia is heavily dependent on the strength of the Chinese economy, which saw growth rebound in the first quarter but has since fallen short of expectations.

The fate of Asian economies, including China, will have a major impact on the rest of the world, with aggressive monetary tightening expected to weigh on US and European growth.

In its forecasts released in May, the International Monetary Fund expects the Asian economy to grow by 4.6% this year, following a 3.8% increase in 2022, and to account for 70% of growth in the global economy.

But it cut Asia’s growth forecast for next year to 4.4% and warned of risks such as higher-than-expected inflation and weaker global demand.