The latest data on manufacturing activity and industrial production have shown signs of slowing down: from Europe to Asia, the recovery is sluggish and new clouds are on the horizon.
Univocal signals are coming from the world powers: the recovery of economic activity is struggling to take off.
European industry plummeted and Asian manufacturing production continued to weaken in July, due to persistent supply chain complications and the slowdown in the global economy.
The purchasing managers’ indices for the four largest members of the euro area all indicated a contraction, which was also confirmed for the entire region. In Asia, it was China, South Korea and Taiwan that took the biggest blow.
The reports reflect the gloomy and uncertain outlook for the world economy, which forced the International Monetary Fund last week to lower its global growth forecast for this year and next, warning that a real recession could be just around the corner.
Eurozone in contraction: what to expect?
The prospects for the euro area look increasingly alarming, despite an exceptional 0.7% expansion in the second quarter. Record inflation and the increased likelihood of a Russian energy cut are threatening a collapse in the 19-member currency block.
“The Eurozone manufacturing sector is sinking into an ever steeper decline, increasing the region’s recession risks,”, said Chris Williamson, economist at S&P Global. "New orders are already falling at a pace that, excluding the pandemic deadlock months, is the strongest since the debt crisis in 2012, with the worst odds."
S&P Global stated that production is declining in all countries surveyed except the Netherlands and that the rate of decline is of particular concern in Germany, France and Italy , the three major economies of the bloc.
The new orders index in the Eurozone fell to 42.6 from 45.2, the lowest level since May 2020, when the pandemic was starting to hit the world, indicating little chance of a turnaround in the near future. Analysts at S&P Global commented that "lower-than-expected sales, reflected in accelerated drop rates of new orders and exports, led to the largest increase in unsold stocks of finished goods ever since investigation."
It should also be noted that the euro zone inflation has further increased from the ECB’s 2% target to a record high of 8.9% in July, according to preliminary official data shown last week. Although input and output price indices declined in the PMI survey, they remained high.
Asia is suffering: not good news for the world economy
In Asia, data showed that Chinese industrial activity unexpectedly contracted in July, reversing previous economic momentum as sporadic outbreaks of Covid-19 weigh on the recovery.
The official manufacturing sector purchasing managers’ index fell to 49 from 50.2 in June. This compares with the median estimate of 50.3 in a Bloomberg survey of economists. The Caixin PMI reading also observed a slowdown.
Currencies weakened against the US dollar following news from Asia, led by the South Korean won and Philippine peso. The Taiwan dollar fell to the key psychological level of 30 per greenback for the first time in more than two years.
“Taiwan’s manufacturing companies painted an increasingly bleak picture of conditions early in the third quarter,”, Annabel Fiddes, associate director of economics at S&P Global Market Intelligence, said in a statement. "Production and new business have both declined at the highest rates since the pandemic’s early stage in May 2020, with companies often linking this to weaker global economic conditions".
The decline in the Asian powers is a clear warning of where global demand will head as central banks aggressively raise borrowing costs to slow soaring inflation.
