Global factory activity shrinks as economic uncertainty deepens

Global factory activity: Global factory activity contracted in September as soft demand and economic uncertainty made for a difficult outlook for manufacturers, prompting calls for policymakers to support fragile growth. Manufacturing activity in the eurozone slowed at its fastest pace this year, as the HCOB's final Purchasing Managers' Index fell to 45.0 from 48.8 in October, below the preliminary estimate of 44.8 but well below the neutral mark of 50 separating growth from contraction. Manufacturing conditions in Germany, Europe's largest economy, declined at their steepest pace over the past year.

"The expected rebound in the eurozone for early 2024 turned out pretty soft so far, and confidence continues to be low and the manufacturing sector very weak," Natasha May of JP Morgan Asset Management wrote.

Oil price declines did the trick in lowering input costs even further in the region, and fears over growing tensions in the Middle East could endanger production and drive the costs up once again. ECB President Christine Lagarde has already dropped hints of yet another ECB rate cut, but US Federal Reserve Chair Jerome Powell said the US will likely continue with the gradual adjustments in rates.

Eurozone inflation dropped to 1.8 per cent in September to report below the ECB's target of 2 per cent, which improves the case for more monetary ease.

On the other side of the English Channel, factory managers in the UK reported rising pessimism, which could be related to fears over the budget of the new government with powerful inflation and concerns in the Middle East hanging in the air.

Asian manufacturers may take some respite from recent stimulus measures initiated by Chinese authorities, namely interest-rate cuts and injections of liquidity into the banking system. Japan's manufacturing activity contracted in September, while Taiwan's growth slowed down, highlighting the blow of soft global demand on Asian exporters.

The South Korean export growth also receded in September as sales to the US fell and the China manufacturing PMI slid to 49.3 from 50.4 - the lowest since July 2023. Japan's final au Jibun Bank PMI fell to 49.7, its third consecutive month in sub-50 territory.

Said Shivaan Tandon, a markets economist at Capital Economics, "It was soft growth in new orders, primarily the main reason that weights down the manufacturing sector last month. Global demand is expected to remain weak in the coming months, which will possibly affect activity in Asia in the short term."

In Taiwan, the PMI came in at 50.8 in September, down from 51.5; and on the survey side, manufacturing contractions were seen in Vietnam, Malaysia and Indonesia. Manufacturing growth in India cooled to an eight-month low as new orders increased at the slowest pace since December.

The IMF expects a soft landing for Asian economies as moderating inflation allows for monetary easing. The growth rate in the region will slow to 4.5 per cent in 2024 and to 4.3 per cent in 2025 from 5 per cent in 2023, the fund said.