Global manufacturing faces downturn amid China’s growth slowdown

Global factory activity remained in a downturn in July, according to private surveys released on Tuesday, indicating that sluggish growth and weakness in China were taking a toll on the global economy, although the outlook in the Americas was noticeably brighter than elsewhere.

This situation presents a challenge for policymakers, who are navigating between implementing aggressive monetary policy tightening to control inflation and preventing potential recessions.

S&P Global, manufacturing activity index held steady at 48.7 in July, marking its lowest point since June 2020. Both the sub-indices for factory production and new orders also hit six-month lows. A value below 50 indicates a decline in activity.

Additionally, the Purchasing Managers’ Index (PMI) for the eurozone indicated the sharpest decline in manufacturing activity since the onset of the COVID pandemic in July. Despite firms significantly reducing their prices, demand slumped.

Furthermore, the Eurozone experiences the fastest manufacturing contraction since the onset of the COVID pandemic, with significant weaknesses observed in Germany, France, and Italy. Germany, the largest economy in Europe, experienced a notable decline, while France and Italy, the second and third largest economies in the eurozone, also showed significant deteriorations compared to June.

Starting in the third quarter, manufacturing deceleration in Germany escalated as statistics indicated a heightened decline in new orders for goods. Simultaneously, the industrial sector in France experienced further contraction in July, though the decline wasn’t as dire as initially projected.

Reuters cited Thomas Rinn, Accenture’s global industrial head, who stated that ‘today’s PMI results are an indicator of the ongoing uncertainty that the eurozone manufacturing sector is currently facing.’

Asia’s manufacturing challenges amid sluggish Chinese demand

In Asia, recent surveys highlight a downturn in factory activity across countries including Japan, South Korea, Taiwan, and Vietnam during July. This trend underscores the impact of sluggish Chinese demand on the region’s manufacturing sector.

China’s Caixin/S&P Global Manufacturing PMI dropped to 49.2 in July from June’s 50.5, falling short of the anticipated 50.3 and marking the first contraction since April. These figures align with the government’s official PMI report released on Monday, adding to the challenges facing officials working to revive China’s post-COVID recovery efforts.

Japan’s final Au Jibun Bank PMI declined to 49.6 in July from 49.8 in June, reflecting both weak local and international demand. In South Korea, S&P Global reported a PMI of 49.4 in July, a slight improvement from June’s 47.8, but still below the critical 50-threshold.

Similarly, Taiwan witnessed a decline in manufacturing PMI, falling to 44.1 in July from 44.8 in June. On the other hand, Vietnam saw an increase in its index, rising to 48.7 in July from 46.2, according to surveys.

While manufacturing in India witnessed a second consecutive month of decline, the pace of reduction remained healthy and exceeded expectations.

America remains stable in manufacturing amid global uncertainties.

In contrast to the oscillations observed in Asia and Europe, manufacturing operations in the United States, Canada, Brazil, and Mexico remained relatively stable.

Meanwhile, the United States witnesses a stabilization of its manufacturing sector, albeit at a subdued level. Although there’s a slight uptick in new orders, a somber note is struck as factory employment hits a three-year low, reflecting an intensified wave of workforce reductions.

According to the Institute for Supply Management (ISM), the manufacturing Purchasing Managers’ Index (PMI) for the United States stands at 46.4, marking the ninth consecutive month of contraction. In Canada and Brazil, the PMI readings approach the critical threshold of 50, with Canada’s PMI at 49.6 and Brazil’s at 47.8.

The broader global manufacturing downturn serves as a poignant reminder of the pervasive uncertainties that economies worldwide are grappling with.