Global factory output slumps as weak demand weighs

London, July 3 (BNA): Global factory activity eased in June, business surveys showed Monday, as slowing demand in China and Europe clouded exporters’ expectations.

Across the eurozone, manufacturing contracted faster than first thought, as continued policy tightening by the European Central Bank squeezed finances, and in Britain, the pace of decline picked up as optimism faded.

In Asia, while factory activity expanded slightly in China, it contracted in Japan and South Korea as the economic recovery in Asia struggled to maintain momentum, Reuters reported.

Data due later Monday is expected to show another contraction in the United States.

“There are no real indications that we’re going to get any recovery in the manufacturing sector this year. Overall, we’re still talking about a negative assessment,” said Rory Fennessey, European economist at Oxford Economics, on the eurozone release.

Compiled by S&P Global, the latest HCOB manufacturing PMI fell to 43.4 from 44.8 in May, its lowest level since the COVID-19 pandemic strengthened its grip on the world, below a preliminary reading and farther than the 50 cut-off mark for growth from contraction.

The slowdown in June was broad-based, with surveys released earlier Monday showing factory activity contracted in all four of the euro zone’s big economies last month.

The S&P Global/CIBS UK manufacturing PMI fell to 46.5 from 47.1 in May, its lowest reading this year and one of the weakest since the 2008-2009 financial crisis.

Asia surveys underscore the toll China’s weaker-than-expected recovery from COVID-lockdowns is taking in the region, as manufacturers also brace for the fallout from sharp increases in US and European interest rates.

“The worst may have passed for Asian factories, but activity lacks momentum due to diminishing prospects for a strong recovery in the Chinese economy,” said Toru Nishihama, senior emerging markets economist at Dai-ichi Life Research Institute.

“China is slow to deliver stimulus. The US economy is likely to feel the pain of large interest rate hikes. All of these factors are making Asian manufacturers pessimistic about the outlook.”

The private survey showed that China’s global Caixin/S&P manufacturing PMI fell to 50.5 in June from 50.9 in May.

That number, along with an official survey on Friday showing factory activity extending declines, adds to evidence that the world’s No. 2 economy lost steam in the second quarter.

The impact was felt in Japan where the Bank au Jibun’s latest PMI fell to 49.8 in June, returning to contraction after expanding in May for the first time in seven months.

New orders from overseas customers fell at the fastest rate in four months, reflecting weaker demand from China.

South Korea’s Purchasing Managers’ Index fell to 47.8 in June, extending its decline to a record 12th consecutive month due to weaker demand in Asia and Europe.

PMI surveys showed factory activity also contracting in Taiwan, Vietnam and Malaysia.

There were bright spots among the economic indicators as India’s manufacturing industry bucked the trend and expanded at a brisk pace in June, albeit slightly slower than in May, supported by strong demand.

The closely watched tankan survey from the Bank of Japan also showed Japanese business sentiment improving in the second quarter as raw material costs peaked and the removal of pandemic restrictions fueled higher consumption.

Asia relies heavily on the strength of the Chinese economy, which saw a pickup in growth in the first quarter but then fell short of expectations.

The fate of the Asian economy, including the Chinese economy, will have a significant impact on the rest of the world, as strong monetary tightening is also expected to affect growth in the United States and Europe.

In forecasts released in May, the International Monetary Fund said it expected Asia’s economy to expand 4.6% this year after a 3.8% increase in 2022, contributing about 70% to global growth.

But it cut its forecast for Asian growth next year to 4.4% and warned of risks to the outlook, such as higher-than-expected inflation and slowing global demand.

Rial