The latest manufacturing survey data showed that important manufacturers in Europe and Asia performed weakly last month as major factories around the world are facing tepid demand, raising the risk that the global economic recovery will run out of steam.

Eurozone manufacturing data weak

Manufacturing activity in the eurozone continues to be sluggish. The HCOB Eurozone Manufacturing Purchasing Managers' Index (PMI) compiled by S&P Global showed that the index fell to 45.8 in July, below the boom-bust line of 50 for more than two consecutive years, indicating that the manufacturing industry is still shrinking. The Eurozone PMI index measuring manufacturing output fell to a seven-month low of 45.6 in July, reflecting that the manufacturing sector is still facing serious challenges. Leo Balincu, an economist from the Oxford Economics Institute, pointed out that the eurozone lacks clear growth momentum due to weak global demand and the transformation of the manufacturing inventory cycle has not yet been realized. The service industry may also be affected by high interest rates and weak consumer spending, further exacerbating the economic slowdown.

Germany, the largest economy in Europe, has a particularly worrying performance in the manufacturing sector. Germany's manufacturing PMI fell to 43.2 in July, showing a severe contraction in the sector. France, the second largest economy in the eurozone, also saw its manufacturing activity shrink at the fastest pace in six months, with the PMI index falling to 44. The further contraction of the manufacturing sectors in both countries suggests that the eurozone economy may face greater downside risks.

UK manufacturing sector bucks trend and rises

In sharp contrast to the weak trend in continental Europe, the UK's manufacturing performance unexpectedly rose against the trend. In July, the UK's manufacturing PMI index rose to 52.1, the highest level since July 2022. Analysts believe that this growth is mainly due to the market's increased optimism about British business and manufacturing after the new Prime Minister Starmer won an overwhelming victory in the election. In addition, the Bank of England recently decided to cut interest rates by 25 basis points to 5% by a vote of 5-4, showing that the Bank of England is adopting a more cautious monetary policy while ensuring stable inflation.

Asian manufacturing performance mixed

In Asia, manufacturing performance in Japan and South Korea also diverged. Japan's manufacturing activity shrank in July, with the PMI falling from 50.0 to 49.1, the first contraction in three months. Weak domestic demand and rising input costs caused by the depreciation of the yen further exacerbated the manufacturing woes. At the same time, the Bank of Japan unexpectedly raised interest rates to the highest level in 15 years and announced a slowdown in its massive bond purchases, which may have an impact on future economic activity.

In contrast, South Korea's manufacturing industry performed relatively well. In July, South Korea's manufacturing PMI reached 51.4, which was above the boom-bust line of 50 for three consecutive months, indicating that manufacturing activities were still expanding, but slightly slowed down from the 26-month high of 52.0 in June. South Korea's manufacturing expansion was partly due to relatively stable export demand, but the slowdown trend still needs attention.

Meanwhile, manufacturing activity in Asia's largest demand country, India, continued to expand steadily, mainly due to continued strong domestic demand. The performance of India's manufacturing industry shows the advantages of its domestic demand-driven economic model amid the current global economic uncertainty.

Global Manufacturing Outlook

Overall, the outlook for global manufacturing growth is not optimistic. Shivaan Tandon, a market economist at Capital Economics, expects global economic growth to be below the trend line baseline for the rest of the year, which will put pressure on manufacturing activities in export-dependent Asian manufacturing giants, especially Japan and South Korea. Although South Korea performed relatively well, the continued weakness of manufacturing activities in Japan and the eurozone indicates that the global economic recovery may still take some time.

The divergent performance of global manufacturing data suggests that regional differences in economic policies and market conditions have had a significant impact on manufacturing. The future direction of manufacturing activity in various countries will be an important focus of global economic observation, given the confluence of multiple factors such as weak global demand, interest rate adjustments and exchange rate volatility.