Global Economy Global factory activity remains weak, and uncertainty about China casts a shadow over the outlook

An employee works on a production line to fabricate steel structures at a factory in Huzhou, Zhejiang Province, China on May 17, 2020. Photo taken on May 17, 2020. China Daily via Reuters/File Photo Obtaining licensing rights

  • The pace of factory slowdowns in the euro zone eased in November
  • China’s PMI unexpectedly expanded in November
  • Manufacturing activity declined in Japan and stabilized in South Korea
  • Weak global demand casts a shadow over the outlook for a fragile recovery in Asia

LONDON/TOKYO (Reuters) – Global manufacturing activity remained weak in November due to weak demand, with factory activity in the euro zone continuing to contract, while there were mixed signs of the strength of the Chinese economy, surveys showed on Friday.

To rein in severe inflation, central banks have aggressively raised interest rates, but those increases have largely come to an end as policymakers instead look to soften the blow to their economies.

In the 20-member euro zone, the final manufacturing PMI issued by the Hamburg Commercial Bank, prepared by Standard & Poor’s Global, came well below the 50 mark that separates contraction from expansion in light of a broad-based contraction.

However, it rose to 44.2 in November from 43.1 in October, higher than the initial estimate of 43.8. An index measuring output, which feeds into the composite purchasing managers’ index scheduled for Tuesday and considered a measure of economic health, rose to 44.6 from 43.1.

“It’s not great but we’ve seen an upward revision which is a good sign – it’s a harbinger of less bad times to come,” said Berenberg’s Holger Schmieding. “For the eurozone the worst will be over early next year.”

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But while the sub-indices rose slightly last month, HCOB warned that the rise was timid and it was too early to call it an upward trend.

In Germany, Europe’s largest economy, its PMI was below 50 although it showed signs of improvement while factories in France once again suffered from weak demand.

In Britain, outside the European Union, there were other signs that it may be going through a prolonged recession, but companies remained cautious.

Asian pain

China’s Caixin/S&P Global Manufacturing PMI rose unexpectedly to 50.7 in November from a reading of 49.5 in October, beating analysts’ expectations.

The reading came one day after an official survey showed a contraction in the activity of manufacturers and non-manufacturers, highlighting the worsening problems in the world’s second-largest economy.

Dan Wang, chief economist at Hang Seng Bank China, said of China’s PMI readings, which samples vary.

Surveys showed that export-reliant Japan, South Korea and Taiwan bore the brunt of the slowdown in global demand, with their industrial activity remaining stagnant in November.

“It is difficult to expect a recovery in Asia any time soon,” said Toru Nishihama, chief emerging markets economist at Dai-ichi Life Research Institute. “Although exports may be bottoming out, they will not accelerate much from here because the global economy lacks a major driver of growth.”

Japan’s Jibun Bank’s final manufacturing PMI fell to 48.3 in November from 48.7, contracting at the fastest pace in nine months.

South Korea’s PMI reached 50.0 in November, up slightly from 49.8 in October. The factory gauge rebound came after 16 straight months of contraction through October, the longest decline since the survey began in April 2004.

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Surveys showed that manufacturing activity also contracted in Taiwan, Vietnam and Malaysia, but expanded in India, Indonesia and the Philippines.

Reuters graphics

This year, China’s economy is struggling to mount a strong post-pandemic recovery, adding gloom to an already bleak global outlook, as the US and European economies begin to feel the brunt of previous strong interest rate increases.

“The weakness in China’s services sector is particularly worrying, because it shows that demand is evaporating even as supply rises,” said Nishihama of the Dai-ichi Life Research Institute.

In India, the PMI survey showed growth in the country’s manufacturing sector accelerating in November thanks to strong production and new orders.

While domestic demand appeared strong, international demand took a hit, with new export orders falling to their lowest level in five months.

(Reporting by Leika Kihara) Editing by Jamie Freed and Gareth Jones

Our standards: Thomson Reuters Trust Principles.

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