European and Asian factory slowdowns signal slowing trade

Posted by Dynasty

THE purchasing managers index for the 19-nation euro zone slipped to 49.6 in August from 49.8 in July, according to S&P Global, thus signaling a downturn for global trade, reports Bloomberg.

Germany and Italy both saw the worst readings in 26 months. In Asia, Taiwan’s PMI fell to 42.7 – its lowest since May 2020 – while South Korea’s declined to 47.6 – the worst since July 2020. Japan weakened too, though remained above the level of 50 that separates contraction from expansion.

A drop in new orders to Taiwanese firms indicates the decline seen in export orders in July is continuing. A series of chipmakers have warned recently of slowing demand for semiconductors, which are a key export from both Taiwan and South Korea.

The decline in factory output from some of the world’s biggest trading hubs is a key warning for demand as inflation weighs on households, said the report.

For the euro zone, the chances of a recession are increasing by the day as Russia curtails energy shipments, stoking steep gains in prices for natural gas and power. The European Central Bank is expected to keep raising rates to contain the highest inflation since the creation of the euro.

“Forward-looking indicators suggest that the downturn is likely to intensify – potentially markedly – in coming months, meaning recession risks have risen,” said S&P Global economist Chris Williamson.

Shipments of Korean semiconductors fell for the first time in more than two years last month, dropping 7.8 per cent from a year ago. Chips comprise about 20 per cent of South Korea’s exports by value, but the drop was compensated for by other goods, with total exports rising 6.6 per cent.

Said S&P Global Market Intelligence economist Usamah Bhatti: “Concern is that the economic slowdown will deepen grew among manufacturers, while businesses also noted the lingering impact of inflation and the war in Ukraine.”

China’s Caixin Manufacturing PMI fell to 49.5 last month from 50.4 in July. That reading matched official data released that showed activity contracted for a second month in August. The official manufacturing PMI inched up to 49.4 from 49.

A boost to Asia exports from China’s initial reopening from bruising lockdowns is now fading, with shipments likely to weaken further, according to Alex Holmes, a senior economist at Oxford Economics.