Global Factory Activity Slumps, Signaling Economic Weakness
Surveys conducted in July have revealed that factory activity across the globe, from Ireland to Germany and Japan, remains in a slump. This indicates that slowing growth and weaknesses in China are taking a toll on the world economy. However, the situation in the Americas appears to be less bleak than in other regions. Policymakers now face the dilemma of balancing aggressive rate hikes to combat inflation with the need to prevent potential recessions.
S&P Global’s gauge of worldwide manufacturing activity remained steady at 48.7 in July, matching the lowest level since June 2020. The subindices of factory output and new orders both slipped to six-month lows. A reading below 50 signifies a contraction in activity.
The Purchasing Managers’ Index (PMI) for the eurozone as a whole showed that manufacturing activity contracted in July at the fastest pace since the COVID-19 pandemic took hold. Despite factories cutting their prices sharply, demand slumped. Germany, Europe’s largest economy, experienced considerable weakness, while France and Italy, the second- and third-largest eurozone economies, also recorded significant deteriorations since June. In Ireland, the AIB PMI revealed a further sharp contraction in activity output in July, reflecting weak overseas demand.
The final eurozone manufacturing PMI, compiled by S&P Global, fell to 42.7 in July from June’s 43.4, its lowest reading since May 2020 and matching a preliminary figure. The index measuring output, which feeds into a composite PMI and is considered a reliable indicator of economic health, dropped to 42.7 from 44.2, a low not seen in over three years.
Data shows that the manufacturing downturn in Germany deepened at the beginning of the third quarter, with goods producers experiencing sharper declines in new orders. France’s factory sector also contracted further in July, although the downturn was not as severe as initially forecasted.
Thomas Rinn, global industrial lead at Accenture, commented on the ongoing uncertainty in the eurozone manufacturing sector, stating that “today’s PMI results are an indicator of the ongoing uncertainty that the eurozone manufacturing sector is currently facing.” He added that dwindling output, coupled with the knock-on effects of inflation, labor shortages, and shifting customer preferences, continue to put pressure on businesses.
In Britain, outside the European Union, factory output contracted in July at the fastest pace in seven months. This was attributed to higher interest rates and a decrease in new orders, despite weakening price pressures.
Surveys also revealed that manufacturing activity contracted in Japan, South Korea, Taiwan, and Vietnam in July, highlighting the strain caused by sluggish Chinese demand on the region. China’s Caixin-S&P Global manufacturing PMI fell to 49.2 in July from 50.5 in June.