Slowdown in Global Manufacturing Activity Challenges Financial Market Optimism

Summary

  • Factory purchasing managers’ indexes indicated a continuous slowdown, creating uncertainty for a swift recovery
  • The final euro zone manufacturing PMI showed a small increase but remains way below the 50 mark that signifies growth
  • A contraction in euro zone GDP in the previous quarter has been observed, with Germany’s manufacturing activity also decreasing
  • The euro zone experienced a 0.1% contraction in the third quarter, approaching the recession threshold
  • Manufacturing activity across Asia saw struggle, especially in tech-heavy economies
  • Despite mixed economic prospects, China’s Caixin PMI displayed an unexpected surge in activity in December
  • Around Asia, activity in Malaysia’s and Vietnam’s influenced factory sectors remained in a negative state

Continued Slowdown in Manufacturing Sector

Published Factory Purchasing Managers’ Indexes on Tuesday highlight a constant deceleration, hinting on a long-awaited recovery this year. This could challenge the revived hope in financial markets seen in the recent weeks.

Decline in Euro Zone’s Manufacturing Activity

The final euro zone manufacturing PMI, complied by S&P Global, slightly increased to 44.4 in December from 44.2 in November. However, it remains significantly below the 50 mark signifying growth. This points to a reduced euro zone GDP in the last quarter, particularly with Germany’s shrinking manufacturing activity in December. The 0.1% contraction in the third quarter of the euro zone economy may lead to a technical recession if shrinkage continues for another quarter.

Slight Increase in Optimism

Despite the pressure on the euro zone manufacturing towards the end of 2023, a slight upturn in the hope for the year-ahead outlook seems promising. However, it is not significant enough to influence major changes, according to Claus Vistesen, Chief Euro Zone Economist at Pantheon Macroeconomics.

Declining Factory Output

A decline in the euro zone factory output was observed, an indication of an index measuring composite PMI falling slightly behind the November reading of 44.6. Britain’s manufacturing sector, after three months of continuous improvement, saw a weakening in December, according to the S&P Global/CIPS manufacturing PMI.

Setbacks in Asia’s Manufacturing Sector

Also, Asia’s factory activity continued to underperform, particularly in tech-dependent economies, with South Korean’s factory activity falling back to decline and Taiwan’s persisting contraction for 19 consecutive months. In contrast, China’s Caixin PMI showed an unexpected speed up in activities in December, despite the persistent mixed economic signals clouding over its major trading partners.

Policy Measures and Economic Struggles

Recent policies introduced by Beijing to uplift its fragile post-pandemic recovery have had little impact amid struggles with a severe property slump, local government debt risks and weak global demand. Elsewhere in Asia, Malaysia’s and Vietnam’s factory sectors remain in contractionary mode, although a slight acceleration was seen in Indonesia.

These factory activity trends across Europe and Asia can significantly impact forex or trading, especially in assets pertaining to these regions.

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