Global factory activity growth slowed in May due to China's strict coronavirus restrictions and Russia's invasion in Ukraine. These disruptions caused supply chains to be disrupted and dampened demand. This added to the problems for businesses already struggling with rising raw material prices.
Business surveys revealed that manufacturing growth was slowing in countries as diverse as France and Japan, as well as Malaysia. This highlights the challenges faced by policymakers in trying to curb inflation without reducing anaemic activity.
S&P Global's final manufacturing purchasing managers' index (PMI) in the euro zone dropped to 54.6 in May, from 55.5 in April. This was its lowest reading since November 2020. However, it was just ahead of a preliminary reading at 54.4. Anything above 50 is considered growth.
The UK's manufacturing activity grew at its weakest pace since January 2021, as consumers struggled to cope with a worsening cost of living.
Simon Jonsson, KPMG, stated that inflation is increasing the cost of doing business and reducing some consumer demand.
"The conflict in Ukraine has created new and worsened shortages of supply, while COVID-19 limitations in China and border friction closer home have adversely affected UK manufacturing."
China's Caixin/Markit manufacturing PMI shows a further contraction. It was 48.1 in May, although it improved slightly from April's 46.0. A private survey did not show any significant change. However, analysts don't expect a quick rebound as in early 2020. They fear that new outbreaks will continue to impact confidence and demand.
As Shanghai's lockdown expires, disruptions to supply chains and distribution of goods may begin to ease. However, we are not in the dark as China hasn’t abandoned its zero-COVID policies altogether," stated Toru Nishihama chief economist at Dai-ichi Life Research Institute Tokyo.
"Rising inflation is forcing some Asian central bank to tighten their monetary policy. Market volatility can also be caused by U.S. interest rates increases. These layers of risk mean that Asia's economy could remain weak throughout the year.
CHINA SPILLOVER
China's lockdown has hampered global logistics and supply chains. Both Japan and South Korea have reported sharp drops in production. Continue reading
Japan's manufacturing activity contracted at its weakest rate in three months in May. PMI survey shows that manufacturers reported an increase in input costs. This was due to the negative effects of China's lockdowns, and the conflict in Ukraine, which strained the economy.
The seasonally adjusted au Jibun Bank Japan PMI dropped to 53.3 in May, from 53.5 in February. This was its slowest pace since February. Continue reading
A glimmer for hope: South Korea's exports increased at a faster rate in May than one month ago, separate data showed Wednesday. This was due to an increase in shipments to Europe, the United States, and more than any fallout from China. Continue reading
The first monthly trade data to be published by major exporting countries is considered a key indicator of global trade.
India's factory activity grew at a faster pace than expected in May. Demand is resilient despite persistently high inflation
