Global factory activity remained sluggish in July, with private surveys indicating a contraction in manufacturing in various regions around the world. The surveys suggest that slowing growth and weakness in China are impacting the global economy. The Purchasing Managers’ Index (PMI), which measures factory activity, fell to 48.7 in July, matching the lowest level since June 2020. A reading below 50 indicates a contraction in activity. In the euro zone, manufacturing activity contracted at its fastest pace since the COVID-19 pandemic began, with notable weakness in Germany, France, and Italy. Germany’s manufacturing downturn deepened, while France’s factory sector contracted further but not as bad as initially forecasted. In the UK, factory output contracted at the fastest pace in seven months.
In Asia, Japan, South Korea, Taiwan, and Vietnam also experienced a contraction in manufacturing activity in July, reflecting the strain of sluggish Chinese demand on the region. China’s manufacturing PMI fell to 49.2 in July, marking the first decline in activity since April. This decline is in line with the government’s official PMI reading and poses a challenge for policymakers as they try to revive momentum in the country’s post-COVID recovery. Other Asian countries, such as Japan and South Korea, also saw weak domestic and overseas demand impacting their manufacturing sectors.
However, there was relative stability in the Americas. In the United States and Canada, manufacturing activity stabilized at weaker levels, with modest improvements in new orders. Brazil’s manufacturing activity continued to contract for the ninth consecutive month but showed signs of improvement compared to previous months. In Mexico, factory activity expanded to a seven-year high, with significant improvements in both output and new orders.
The global manufacturing downturn highlights the dilemma faced by policymakers as they try to combat inflation while avoiding potential recessions. The uncertainty in the euro zone manufacturing sector, dwindling output, inflation, labor shortages, and changing customer preferences are all contributing to the squeeze on businesses. The outlook for emerging Asia remains clouded by China’s slowdown, although the International Monetary Fund predicts that the region’s economic growth will accelerate this year. With global factory activity remaining sluggish, policymakers will need to navigate these challenges to stimulate economic recovery and prevent further downturns.