GLOBAL ECONOMY Factory activity contracted again in Jan, highlighting fragile recovery

  • Eurozone factories passed their lowest activity – PMI
  • Chinese factory activity eases Jan – Caikin PMI survey
  • The softening of the pressure on input prices gives signs of hope

LONDON/TOKYO, Feb 1 (Reuters) – Manufacturing activity across Europe and Asia eased again last month, underscoring the fragility of the global economic recovery, although euro zone factories may have at least gone through a run, surveys showed on Wednesday.

Price pressures eased and the fall in demand eased in the 20 countries that share the euro, sparking a surge in optimism. The bloc posted growth in the final three months of 2022, managing to avoid recession, official data showed on Tuesday.

S&P Global’s final purchasing managers’ index (PMI) rose to a five-month high of 48.8 in January from December’s 47.8, in line with preliminary readings, but remained below the 50 mark that separates growth from contraction.

“We think the worst is now over for both inflation and the activity front. Activity is not softening, it’s going back up, so expectations are for a recovery,” said Mateus Urban, senior economist at Oxford Economics.

Manufacturers in Germany, Europe’s largest economy, started 2023 with a slightly brighter outlook for next year despite demand continuing to decline as inflation and supply chain problems eased.

In France, the bloc’s second-largest economy, factory activity returned to growth, although not as strongly as originally forecast.

But Britain’s manufacturing business shrank for a sixth straight month in January, kicking off a tough 2023 when the country’s economy looks set to slip into recession.

However, central bank policymakers will welcome a reduction in price pressures. Rising inflation – initially described as transitory – proved much stickier than thought and prompted aggressive monetary tightening.

The US Federal Reserve looks set to raise borrowing costs by 25 basis points later on Wednesday, a Reuters poll showed. The European Central Bank and the Bank of England are expected to add 50 basis points on Thursday, according to separate Reuters polls.

Eurozone inflation eased for a third straight month in January, but the relief may be limited as core price growth remained steady, official data showed on Wednesday.

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In Asia, factory activity eased in January as China’s COVID reopening stimulus had yet to take effect.

China’s factory activity contracted more slowly in January after Beijing lifted strict measures to contain the COVID-19 pandemic late last year, a private sector survey showed.

China’s Caikin/S&P Global manufacturing purchasing managers’ index (PMI) rose to 49.2 in January from 49.0 in December, remaining below the 50 mark for the sixth straight month.

The data contrasted with a better-than-expected official PMI survey released on Tuesday. But while the official PMI mainly focuses on large and state-owned Chinese enterprises, Caikin’s survey focuses on small firms and coastal regions.

Easing pressures on input prices also provided initial positive signs for Asia, with the pace of output contraction in Japan and South Korea slowing, surveys showed.

But there is uncertainty over whether the region will be able to weather the blow from slowing global demand and stubbornly high inflation, some analysts say.

“The worst of the decline in Asia is behind us, but the outlook is clouded by weakness in major export destinations like the United States and Europe,” said Toru Nishihama, chief economist at the Dai-ichi Life Research Institute in Tokyo.

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“With the recovery from COVID-19 underway, Asian economies need a new growth engine.” So far, he’s gone.”

Factory activity expanded in Indonesia and the Philippines in January but eased in Malaysia and Taiwan, PMI surveys showed. India’s manufacturing industry started the year weaker, growing at its slowest pace in three months.

The International Monetary Fund on Tuesday slightly raised its outlook for global growth in 2023 due to “surprisingly resilient” demand in the United States and Europe and the reopening of China’s economy after Beijing eased strict pandemic controls.

However, the IMF said global growth would still slow to 2.9% in 2023 from 3.4% in 2022 and warned that the world could easily slide into recession.

Reporting by Jonathan Cable and Leiko Kihara; Editing: Bradley Perrett and Christina Fincher

Our Standards: Thomson Reuters Trust Principles.


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