Factories start 2018 on solid footing

LONDON/HONG KONG: Factories across the globe got off to a strong start this year, with manufacturing activity in most countries gaining momentum and hitting multi-year 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.

Last year, the euro zone economy was a surprise global star and any signs that zip, alongside rising price pressures, has carried into this year will be welcomed by the European Central Bank as it moves to unwind its super-loose monetary policy.

The 19-country bloc’s booming manufacturing industry raced into 2018, churning out goods at one of the fastest monthly paces in over 20 years in January.

“The euro zone economy clearly has a tailwind behind it. There is nothing on the immediate horizon which 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 euro zone 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 their most optimistic in at least 5-1/2 years.

Among the four biggest economies, PMIs 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 last month.

Uncertainties over its path to leave the European Union next year 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 per centage point slower than the euro zone,” 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 PMI 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 United States, where a sister survey is expected to show solid manufacturing activity. —