Factory output slows across Europe and Asia as US-China trade war creates global ripples

Factory activity weakened across much of Europe and Asia in December as the USled trade war and a slowdown in demand hit production in many economies, offering little reason for optimism as the new year begins.

A series of purchasing managers’ indexes for December released yesterday mostly showed declines or slowdowns in manufacturing activity across the globe.

“We are really seeing a global slowdown into this year, and in Asia, particularly, export-oriented countries are hurting,” said Irene Cheung, Asia strategist at ANZ.

“Our expectation for central banks is that most of them won’t change policy in 2019 and these numbers coming out on the weak side won’t change that outlook.”

Eurozone manufacturing activity barely expanded at the end of 2018, providing disappointing reading for European Central Bank policymakers, just after they ended their €2.6 trillion (Dh10.92tn) asset-purchase scheme.

Earlier PMI surveys showed Italy remained in contraction territory and was joined by France, where data showed a first deterioration in operating conditions for 27 months.

Manufacturing growth in both Germany and Spain was modest, easing to the weakest in around two and a half years.

British factories, however, ramped up stockpiling as they prepared for possible border delays when Britain leaves the European Union in less than three months’ time.

The UK manufacturing PMI rose to a six-month high, stronger than all forecasts in a Reuters poll of economists.

Survey compiler IHS Markit cautioned the improvement did not herald a big change in the outlook for Britain’s stuttering economy – it was caused in large part by manufacturers stockpiling inputs and finished goods. “Despite the headline index rising to a sixmonth high in December, the manufacturing PMI still suggests that the sector stagnated in Q4,” said Andrew Wishart at Capital Economics.

Surveys later yesterday were expected to show US activity was slower, but still expanding, in a sign China has suffered more from trade frictions than the US.

But world shares started 2019 on a downbeat note, oil prices and bond yields slid, and the Japanese yen strengthened as the factory survey data confirmed the picture of a global economic slowdown.

In China, the Caixin/IHS Markit PMI slipped into contraction territory for the first time in 19 months, broadly tracking an official survey released on Monday. China’s economic growth slowed to 6.5 per cent in the third quarter of last year, the weakest since the global financial crisis.

Reuters reported government advisers had recommended a growth target of 6.0 to 6.5 per cent for this year at the annual meeting, although the final figure wwill not be made public until parliament’s annual meeting in early March.

A drop in crude oil prices at the end of last year has helped sentiment in Asia’s oil-importing economies, where trade deficits are a key vulnerability.

Indonesia’s PMI, although still weak historically, rose. India’s declined but capped the strongest quarter for the country’s manufacturing since late 2012. But Malaysia, which relies heavily on oil revenues, saw its weakest reading ever.

Actiivty shrank in Taiwan and South Korea, which are heavily focused on tech production.