Daily Management Review

Global Factory Output Declines Due To Insufficient Demand


Global Factory Output Declines Due To Insufficient Demand
Business surveys released on Monday revealed a decline in global industrial activity in June as weak demand in China and Europe clouded the picture for exporters.
Manufacturing shrank more quickly than initially anticipated across the euro zone as the European Central Bank's ongoing policy tightening pinched finances, while in Britain the pace of contraction accelerated as optimism waned.
While manufacturing activity in Asia increased somewhat in China, it decreased in Japan and South Korea as the region's economic recovery struggled to keep pace.
It's anticipated that data released on Monday would reveal a further decrease in the US.
"There are no real signs we are going to get any rebound in the manufacturing sector this year. On the whole we are still talking about a negative assessment," said Rory Fennessy, European economist at Oxford Economics on the euro zone release.
The S&P Global-compiled HCOB final manufacturing PMI for the euro zone dropped to 43.4 from 44.8 in May, marking the lowest level since the COVID pandemic was firmly entrenched in the world. This data is lower than an initial reading and further away from the 50 threshold that separates expansion from contraction.
The decline in factory activity in June affected all four of the euro zone's largest economies, according to polls released earlier on Monday.
The S&P Global/CIPS UK Manufacturing PMI dropped to 46.5 from 47.1 in May, marking its weakest level since the 2008–2009 financial crisis and its lowest reading this year.
Asia's surveys highlight the impact that China's less-than-expected recovery from COVID lockdowns is having on the region, as manufacturers are also preparing for the effects of aggressve interest rate hikes in the U.S. and Europe.
"The worst may have passed for Asian factories but activity lacks momentum because of diminishing prospects for a strong recovery in China's economy," said Toru Nishihama, chief emerging market economist at Dai-ichi Life Research Institute.
"China is dragging its feet in delivering stimulus. The U.S. economy will likely feel the pain from big rate hikes. These factors all make Asian manufacturers gloomy about the outlook."
The Caixin/S&P Global manufacturing PMI for China dipped from 50.9 in May to 50.5 in June, according to the unofficial poll.
The number adds to the evidence that the second-largest economy in the world lost speed in the second quarter, along with Friday's official survey that showed factory activity continuing decreases.
The consequences may be seen in Japan, where the final au Jibun Bank PMI dropped to 49.8 in June and started to contract again after increasing in May for the first time in seven months.
The fastest drop in new orders from international clients in the past four months was due to weak Chinese demand.
The sluggish demand in Asia and Europe caused South Korea's PMI to decline to 47.8 in June, marking the record-setting 12th straight month of decline.
According to the PMI surveys, factory activity also decreased in Taiwan, Vietnam, and Malaysia.
There were some encouraging signs among the economic data, with India's manufacturing sector defying the trend and growing quickly in June, albeit a little more slowly than in May, thanks to strong demand.
As raw material prices reached their high and pandemic restrictions were relaxed, business mood in Japan improved in the second quarter, according to the closely observed Tankan survey by the Bank of Japan.
Asia is mostly dependent on the health of China's economy, whose growth rebounded in the first quarter but later lagged behind forecasts.
The future of Asia's economies, notably China's, will have a significant effect on the rest of the globe, and aggressive monetary tightening is anticipated to have a negative influence on the growth of the U.S. and Europe.
The International Monetary Fund predicted in May that Asia's GDP will rise by 4.6% this year and 3.8% in 2022, accounting for over 70% of global growth.
However, it reduced the estimate of Asian growth for the following year to 4.4% and issued a warning about the risks to the outlook, including higher-than-anticipated inflation and a slowing of global demand.