Surveys showed global factory activity weakened in September as weak demand and economic uncertainty cast a tough outlook, putting pressure on policymakers to shore up fragile growth.
Manufacturing activity in the euro zone slowed to its fastest pace this year, even as factories cut prices and Europe’s biggest economy, Germany, saw its sharpest deterioration in conditions in 12 months.
The final Hamburg Commercial Bank (HCOB) manufacturing PMI from S&P Global fell to 45.0 in September. That was slightly more than the 44.8-point estimate, but further from the 50-point mark separating growth from contraction.
“The expected recovery in the euro area at the beginning of 2024 turned out to be rather sluggish. Confidence remains somewhat depressed and the manufacturing sector still looks very weak,” Natasha May of JP Morgan Asset Management told Reuters.
Falling oil prices have helped reduce production costs in the region, but there are fears that escalating tensions in the Middle East could affect production and push them back up.
On Monday, European Central Bank President Christine Lagarde gave the clearest hint yet of another interest rate cut, while Federal Reserve Chairman Jerome Powell indicated the U.S. central bank is likely to stick with a quarter-percentage-point rate cut forward and will not “hurry”.
Inflation in the 20-nation currency union fell to 1.8% in September, below the ECB’s 2% target and bolstering the already solid case for another rate cut this month.
In Britain, factory managers turned sharply more pessimistic as worries about the new government’s first budget combined with worries about the situation in the Middle East and strong inflationary pressures.
Slow down
Still, Asian manufacturers may get some relief in the coming months from the aggressive stimulus presented by Chinese authorities last week, including lowering interest rates and injecting liquidity into the banking system.
But factory activity in Japan shrank last month and in Taiwan expanded at a slower pace, purchasing managers’ indexes (PMI) showed, underscoring the impact of weak global demand on Asian exporters.
In a sign of the widening effects of the US growth slowdown, South Korea’s export growth slowed in September. South Korean supplies to the world’s largest economy are barely increasing.
In China, factories also struggled to make progress, with the Caixin/S&P Global manufacturing PMI on Monday showing a drop to 49.3 in September from 50.4, the lowest since July 2023.
The picture is similar in Japan, which relies on exports to drive economic growth amid subdued consumption. Jibun Bank Japan’s final PMI eased to 49.7 in September from 49.8 and remained below the 50.0 threshold for a third straight month.
“Weaker growth in new orders was the main factor weighing on manufacturing last month,” Shivaan Tandon, markets economist at Capital Economics, said of the Asia PMI. “Global demand will remain weak in the coming months and will weigh on activity in Asia in the near term.”
In September, the PMI for Taiwan stood at 50.8, down from 51.5 in the previous month. Manufacturing activity in Vietnam, Malaysia and Indonesia also contracted, the surveys showed.
Growth in India’s manufacturing industry cooled to an eight-month low in September as new orders – a key gauge of demand – rose at the slowest pace since December.
The International Monetary Fund (IMF) expects a “soft landing” for Asian economies as moderate inflation creates opportunities for central banks to ease monetary policies. It projects growth in the region to slow from 5% in 2023 to 4.5% this year and 4.3% in 2025.
