Factories start year on solid note
• Eurozone economy churned out goods at one of the fastest monthly paces in some 20 years as global manufacturing booms
Factories around the world got off to a strong start in 2018, with manufacturing activity in most countries gaining momentum and hitting multiyear highs.
Factories around the world got off to a strong start in 2018, with manufacturing activity in most countries gaining momentum and hitting multiyear highs.
Business surveys from Europe and Asia showed solid activity and output, reinforcing expectations for another year of synchronised global expansion that has propelled many world stock markets to or close to record highs.
In 2017, the eurozone economy was a surprise global star and any signs that zip, alongside rising price pressures, has carried into 2018 will be welcomed by the European Central Bank as it moves to unwind its superloose monetary policy.
The 19-country bloc’s booming manufacturing industry raced into 2018, churning out goods in January at one of the fastest monthly paces in more than 20 years.
“The eurozone economy clearly has a tailwind behind it. There is nothing on the immediate horizon that would make you think the economy is about to run out of steam,” said Peter Dixon, global financial economist at Commerzbank. IHS Markit’s January final manufacturing purchasing managers’ index for the eurozone was 59.6, matching an earlier preliminary reading but below December’s 60.6 — which was the highest since the survey began in June 1997.
Indicating February would also be a busy month, new orders growth was at a near record pace, as was employment. Firms also built up a solid backlog of work and were the most optimistic they had been in more than five years.
Among the four biggest economies, the purchasing managers’ indexes were close to record highs in Germany and Italy and among the best for 17 years and a decade in France and Spain respectively.
But the biggest outlier in Europe was Britain, where manufacturing lost more momentum than expected in January. Uncertainties over its path to leave the EU in 2019 curtailed business investment, following one of the steepest jumps in the cost of raw materials in decades.
“The UK economy looks set to grow at half the rate of the US in 2018 and a full percentage point slower than the eurozone,” said James Knightley, chief international economist at ING. “It should be doing much better given the global upturn in demand and the competitive sterling exchange rate.”
The UK factory purchasing managers’ index dropped to its lowest since June and the prospects for 2018 do not look bright. Markets were little moved by the data.
Focus will later turn to the US, where a sister survey is expected to show solid manufacturing activity.
The strongest manufacturing readings in Asia came from technology exporters, which continue to ride a robust semiconductor cycle driven by upgrades in smartphones, industrial robots, cars and demand for computers used to mine cryptocurrencies.
In Japan, the Markit/Nikkei purchasing managers’ index rose to a four-year high.
Taiwan’s reading rose to its highest level since April 2011, while South Korean factory activity bounced back into expansion territory as domestic and export orders picked up.
Even in China — where authorities are cracking down on air pollution and excessive financial risks — factory growth in January appeared generally resilient, though economists agree the crackdowns will start to weigh on activity eventually.
The private Caixin/Markit purchasing managers’ index was steady at 51.5, matching December’s reading and better than economists expected, though official data on Wednesday suggested a slight softening as export orders faltered.
A clearer picture of China’s manufacturing activity and its actual demand may not emerge until spring when winter smog restrictions are lifted and construction revives.
“Overall, we expect Asian manufacturing conditions to remain healthy, supported by robust external demand and accommodative domestic monetary policy,” said Krystal Tan at Capital Economics.
The outlook for Asia’s export-reliant economies, however, remains clouded by worries about US trade protectionism as the Trump administration starts translating 2017’s tough talk into action.
Washington slapped steep import tariffs on washing machines and solar panels last week, drawing protests from Beijing and Seoul, and US officials suggest other measures are on the way.
While such steps could hurt growth, HSBC Private Banking’s head of investment strategy for Asia, Cheuk Wan Fan, said there was no reason to panic as Asian countries traded more with one another than in the past and were less reliant on the US.
Individual companies were therefore more at risk than the wider economic picture.
“When we look at the risk arising from US protectionism and trade infighting, we adopt a bottom-up approach in identifying potential victims,” she said. “We will avoid these companies which heavily rely on US export markets.”