The decline in the manufacturing industry in the euro area was more serious than originally expected due to the persistent tightening of the European Central Bank. This financial austerity, coupled with waning optimism in Britain, resulted in a steeper downturn. Meanwhile, Asia’s economic recovery faced challenges as factory activity in China expanded only slightly, but contracted in Japan and South Korea.
Rory Fennessy, Europe economist at Oxford Economics, expressed pessimism about the sector’s prospects this year. He noted that there are no clear signs of recovery in the manufacturing industry. Data compiled by S&P Global and HCOB showed that the Eurozone’s manufacturing Purchasing Managers’ Index (BMI) fell to 43.4 from 44.8 in May, the lowest reading since the start of the coronavirus pandemic.
The downturn is widespread across Europe: factory activity fell in all four of the eurozone’s largest economies last month. A decline was also seen in the United Kingdom, where the manufacturing BMI fell from 47.1 in May to 46.5, which represents the lowest value of this year and one of the weakest values since the financial crisis of 2008-2009.
In Asia, surveys have highlighted how China’s weaker-than-expected recovery from the coronavirus lockdown affects regional manufacturers, who are also struggling with aggressive interest rate hikes in the US and Europe. China’s Caixin BMI fell to 50.5 in June from 50.9 in May, signaling a slowdown in the world’s second-largest economy during the second quarter.
The slowdown was also felt in Japan, where overseas orders fell at the fastest pace in four months due to weak Chinese demand. South Korea also felt the impact, with BMI falling to 47.8 in June, a record 12th consecutive month of decline due to weak demand in Asia and Europe.
Despite the bleak indicators, the Indian manufacturing industry managed to expand at a healthy pace in June thanks to robust demand, albeit slightly slower than in May. Furthermore, business sentiment in Japan improved during the second quarter as commodity costs peaked and restrictions due to the pandemic were lifted.
However, with Asia relying heavily on China’s economic strength, which has fallen short of expectations after an initial rebound in the first quarter, these positive signs may not be enough to offset broader concerns about global growth, with aggressive monetary tightening expected to have an impact to American and European growth.
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