Asia Pacific

GLOBAL ECONOMY European factories racing as Asian manufacturers see momentum weaken

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Labourers work in VinFast's factory in Hai Phong City, Vietnam, April 22, 2021. Picture taken April 22, 2021. REUTERS/Thanh Hue/Files

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  • Euro zone factory growth at record high
  • British factories on hiring spree
  • China's Caixin PMI expands at softer pace in June
  • Japan June factory activity grows at slowest pace in 4 months

LONDON/TOKYO, July 1 (Reuters) - European factories continued to ramp up their post-lockdown recovery in June but Asian manufacturers saw momentum weaken amid rising input costs and the reintroduction of curbs to combat a new wave of coronavirus infections, surveys showed.

Euro zone manufacturing activity expanded at its fastest pace on record last month while Britain's factories extended their post-lockdown recovery and went on a hiring spree.

"How has that story turned -- a few months ago we were seeing the euro zone was lagging with vaccinations far behind. We were expecting a turnaround and we haven't seen much disappointment," said Bert Colijn at ING.

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"That upside scenario has materialised. There is a very broad feeling amongst businesses in both services and industry that the coming months are going to be very strong as economies reopen."

Czech and Polish manufacturing hit a record pace of activity for the second month in a row as orders rose and economies opened up again.

But manufacturing activity grew at a slower pace in China and Japan as raw materials rose, while activity shrank in Vietnam, Malaysia and India, where governments imposed tougher restrictions to contain fresh coronavirus outbreaks.

A shortage of shipping containers and supply chains hugely affected by the global pandemic have made it a sellers' market for materials needed by factories. An index measuring input prices in the euro zone was at its highest since the survey began 24 years ago.

IHS Markit's final manufacturing Purchasing Managers' Index (PMI) nevertheless rose to a survey high of 63.4 in June from May's 63.1, above an initial 63.1 "flash" estimate. Anything above 50 indicates growth.

Britain's PMI dipped to 63.9 from May's all-time high but the pace of expansion in output, new orders and employment remained among the highest in the survey's near 30-year history after some COVID-19 restrictions were eased.

ASIA LAG

Data showed Asia was lagging behind western economies in recovering from the pandemic doldrums, reinforcing the view that many regional central banks were unlikely to withdraw pandemic-era stimulus soon. read more

"The June PMIs dropped back as virus outbreaks and supply chain issues created mounting headwinds for industry," said Alex Holmes, emerging Asia economist at Capital Economics.

"With neither issue likely to be resolved soon, the rapid growth in industry over the past few quarters looks unlikely to be repeated."

China's factory activity expanded at a softer pace in June with output growth slumping to the lowest level in 15 months, according to a private survey, in line with an official survey showing a dip in activity to a fourth-month low. read more

The Caixin/Markit Manufacturing PMI fell to 51.3 in June from May's 52, marking the 14th month of expansion but coming in below analyst expectations for only a slight slowdown to 51.8.

Higher raw materials costs and a shortage of semiconductor chips also hurt export powerhouses including Japan, which saw factory activity expand at the slowest pace in four months in June.

South Korea fared better, with factory activity growing for a ninth consecutive month in June, though record input and output price rises pointed to strains on manufacturers.

"Manufacturers were increasingly commenting that severe supply chain disruption was starting to impact activity," said Usamah Bhatti, an economist at IHS Markit.

Once seen as a driver of global growth, Asian's emerging economies are lagging advanced economies in recovering from the pandemic's pain as delays in vaccine rollouts hurt domestic demand and countries reliant on tourism.

Vietnam's PMI plunged to 44.1, marking the sharpest deterioration in business conditions while Malaysia's PMI fell to 39.9 as renewed COVID curbs weighed on external and domestic demand. The PMI for Taiwan fell to 57.6 from 62.0.

India's factory activity contracted for the first time in almost a year as restrictions to contain the deadly second wave of the coronavirus hit demand. read more

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Reporting by Jonathan Cable and Leika Kihara; Editing by Ana Nicolaci da Costa and Catherine Evans

Our Standards: The Thomson Reuters Trust Principles.

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