Pent-up demand drives global manufacturing revival
However, China's private PMI expands at slowest pace in nine months
London — Demand for manufactured goods drove extended growth in factories worldwide in February, but a slowdown in China underscored the challenges countries face as they seek a sustainable recovery from the Covid-19 pandemic blow.
Restrictions imposed around the world to try to quell the spread of the coronavirus have shuttered vast swathes of the services industry, meaning it has fallen to manufacturers to support economies.
But vaccine rollouts and a pickup in demand provided optimism for businesses that have grappled for months with a cash flow crunch and falling profits.
IHS Markit's final Purchasing Managers’ Index (PMI) jumped to a three-year high of 57.9 in February from January's 54.8, beating the initial 57.7 “flash” estimate for one of the highest readings in the survey's 20-year history.
SA’s seasonally adjusted Absa PMI expanded at a faster pace last month compared with January, supported by an increase in new sales and business activity. The index rose to 53 points in February from 50.9 points in January, remaining above the 50-point mark that separates expansion from contraction.
German factory activity also reached a three-year peak last month and in France the pace of growth accelerated. Italy and Spain also saw an improvement.
However, lockdown measures disrupted supply chains and factories struggled to obtain raw materials, leading to a big increase in delivery times.
“International shipping delays and strong global demand for raw materials have slowed manufacturers worldwide,” said Samuel Tombs at Pantheon Macroeconomics.
Greek manufacturing activity contracted in February as output and new orders declined due to weak client demand and coronavirus-related restrictions.
Factories in Britain, outside the eurozone and the EU, reported the slowest output growth since May last month. Disruptions and rising costs linked to Brexit and Covid-19 limited their ability to respond to a modest pickup in orders.
Russian manufacturing activity expanded in February at its fastest pace in almost two years as growth in output and new orders accelerated despite challenging external demand conditions, IHS Markit's index showed. Its PMI rose to 51.5 last month from 50.9 in January, marking the highest reading since April 2019.
Manufacturing activity in Japan expanded at the fastest pace in over two years and South Korea's exports rose for a fourth straight month, suggesting Asia's export-reliant economies were benefiting from robust global trade.
On the flip side, China's factory activity grew at the slowest pace in nine months, hit by a domestic flare-up of Covid-19 and soft demand from countries under renewed lockdown measures.
“In all, the softer pace of activity in today's (Chinese) manufacturing print is likely to be temporary, and we expect the growth momentum to pick back up on the back of a broadening out of the domestic demand recovery and a pickup in global demand,” said Erin Xin, an economist at HSBC.
“However, household consumption, while recovering, has not yet fully reached pre-pandemic levels of growth due to continued labour market pressure.”
China was the first major economy to lead the recovery from the Covid-19 shock, so any signs of prolonged cooling in Asia's growth engine will likely be a cause for concern.
With the global rebound still in its early days, analysts said the outlook was brightening as companies increased output to restock inventory on hopes vaccine rollouts normalise economic activity.
“The recovery in durable-goods demand is continuing, which is creating a positive cycle for manufacturers in Asia,” said Shigeto Nagai, head of Japan economics at Oxford Economics.
“As vaccine rollouts ease uncertainties over the outlook, capital expenditure will gradually pick up. That will benefit Japan, which is strong in exports of capital goods,” he said.
China's Caixin/Markit Manufacturing PMI fell to 50.9 in February, the lowest level since last May but still above the 50 mark that separates growth from contraction.
Activity elsewhere in Asia remained brisk.
The Japan PMI jumped to its highest since December 2018. In South Korea, a regional exports bellwether, shipments jumped 9.5% for a fourth straight month of increase.
India's factory activity expanded for the seventh consecutive month on strong demand and increased output, though a spike in input costs could weigh on corporate profits ahead.
The Philippines, Indonesia and Vietnam also saw manufacturing activity expand in February, a sign the region was recovering from the initial hit of the pandemic.
In the Americas, the pace of expansion in Brazil's manufacturing sector picked up again in February after three months of deceleration.
IHS Markit's headline manufacturing PMI rose to 58.4 in February from 56.5 in January, marking the ninth consecutive month of growth.
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