Global PMIs show factories battled in July as demand wanes

London/Tokyo — Manufacturers across Europe and Asia turned in a weak performance last month as factories grappled with tepid demand, surveys showed on Thursday, raising the risk of an underpowered global economic recovery.

It was a broad-based downturn in the eurozone while a slump in China’s manufacturing activity suppressed its Asian neighbours. British factories bucked the trend and recorded their best month for two years, with output and hiring rising.

HCOB’s final eurozone manufacturing purchasing managers’ index (PMI), compiled by S&P Global, held at June’s 45.8 in July. It has been below the 50 mark separating growth from contraction for more than two years.

An index measuring output, which feeds into a composite PMI due on Monday that is seen as a good gauge of economic health, dropped to a seven-month low of 45.6.

“The turn in the manufacturing inventory cycle has yet to materialise in a context of weak global demand, leaving the eurozone short of a clear growth driver as services are slowing,” said Leo Barincou at Oxford Economics.

“Persistently weak industrial surveys pose a major downside risk to our forecast of an industrial pickup in the second half of the year.”

The downturn in Germany’s manufacturing sector, which accounts for about a fifth of Europe’s biggest economy, accelerated while in France the industry contracted at its fastest rate in six months.

In Britain the index rose to 52.1, its highest reading since July 2022, as optimism builds after Prime Minister Keir Starmer’s landslide election victory. The Bank of England looks in a position to cut interest rates later on Thursday after holding it at a 16-year high of 5.25% for the past year.

More cuts

The Federal Reserve on Wednesday flagged a possible start to interest rate cuts as soon as September if the US economy follows its expected path.

Having trimmed its deposit rate in June, the European Central Bank could follow up with two more cuts this year, a Reuters poll predicted.

Manufacturing activity shrank in Japan and expanded at a slower pace in South Korea due partly to soft domestic demand and rising input costs, adding to the gloom from a contraction in China’s factory activity.

China’s Caixin/S&P Global manufacturing PMI sank to 49.8 in July from 51.8 the previous month, the lowest reading since October last year and missing analysts’ forecasts of 51.5.

The reading, which mostly covers smaller, export-orientated firms, was in line with an official PMI survey on Wednesday showing manufacturing activity slipped to a five-month low.

“Looking ahead, we expect a period of below trend global growth to weigh on manufacturing activity across Asia for the rest of this year,” said Shivaan Tandon, markets economist at Capital Economics.

Japan’s final au Jibun Bank Japan manufacturing PMI fell to 49.1 in July from 50.

Moving in the opposite direction to most other central banks, the Bank of Japan raised interest rates to levels unseen in 15 years on Wednesday and unveiled a detailed plan to slow its huge bond buying.

South Korea, another key regional export engine, fared better with the PMI standing at 51.4 in July, above the 50-mark for a third month but slowing from June’s 26-month high of 52.

China poses a potential hurdle for business expansion in the region and while South Korea’s July exports rose at the fastest pace in six months, helped by strong chip sales, it missed market expectations.

Elsewhere, factory activity expanded in Taiwan but also slowed slightly from June while India’s manufacturing activity expanded at a solid pace thanks to continued robust demand.

Reuters