Global factory activity ended 2023 on a soft note

[January 02, 2024]  By Indradip Ghosh and Sam Holmes

BENGALURU/SYDNEY (Reuters) - Global factories had a weak finish to 2023, with euro zone activity contracting for an 18th straight month in December and Asia's manufacturing powerhouses taking a hit due to China's patchy economic recovery.

A range of factory purchasing managers' indexes published on Tuesday showed a persistent slowdown and suggested any turnaround this year would take time, challenging the renewed optimism in financial markets over the past few weeks.

HCOB's final euro zone manufacturing Purchasing Managers' Index (PMI), compiled by S&P Global, nudged up marginally to 44.4 in December from 44.2 in November but remained well below the 50 level that marks growth in activity.

The trend points to a contraction in euro zone GDP in the quarter just gone by, with manufacturing activity in the 20-country bloc's largest economy, Germany, also shrinking in December.

The euro zone economy contracted 0.1% in the third quarter, according to official data, so a second quarter of shrinkage would meet the technical definition of recession.

"Euro zone manufacturing remained under pressure at the end of 2023," said Claus Vistesen, chief euro zone economist at Pantheon Macroeconomics. "Looking ahead, the slight increase in optimism regarding the year-ahead outlook is a silver lining, but a slim one."

An index measuring euro zone factory output, which feeds into a composite PMI due on Thursday and seen as a good gauge of economic health, dipped to 44.4 from November's final reading of 44.6 but was slightly ahead of the 44.1 flash estimate.

Britain's manufacturing sector also suffered a setback, with the final reading of the S&P Global/CIPS manufacturing PMI weakened to 46.2 in December, ending a run of three months of improvement.

Data due later on Tuesday will shed more light on whether there was also a deterioration in U.S. manufacturing activity toward the end of 2023 as suggested by preliminary readings.

DOWNBEAT SIGNALS FROM ASIA

Asia's factory activity continued to struggle as well last month, especially in technology-reliant economies.

South Korean factory activity dipped back into decline and Taiwan extended its contraction for the 19th straight month.

A crane lifts a steel coil at the storage and distribution facility of German steel maker ThyssenKrupp in Duisburg, Germany, November 16, 2023. REUTERS/Wolfgang Rattay/File Photo

China's Caixin PMI showed an unexpected acceleration in activity in December, although this contrasted with Beijing's official PMI released on Sunday that remained in contraction territory for the third straight month.

The mixed economic prospects for China continue to cloud the outlook for its major trading partners.

"Overall, the economic outlook for (China's) manufacturing sector continued to improve in December, with supply and demand expanding and price levels remaining stable," Wang Zhe, Senior economist at Caixin Insight Group, said.

"However, employment remained a significant challenge, and businesses expressed concerns about the future, remaining cautious in areas including hiring, raw material purchasing, and inventory management."

Beijing has in recent months introduced a series of policies to shore up a feeble post-pandemic recovery, but the world's second-largest economy is struggling to gain momentum amid a severe property slump, local government debt risks and soft global demand.

Elsewhere in Asia, PMIs showed activity in Malaysia's and Vietnam's factory sectors remained in contractionary mode, although it accelerated slightly in Indonesia.

India's PMI for last month will be released on Wednesday and Japan's is due on Thursday.

While Asia's December PMIs were mostly downbeat, other recent indicators point to signs the region's post-pandemic recovery is starting to gain traction.

Singapore's gross domestic product sped up in the December quarter from a year earlier, helped by firmer construction and manufacturing, data showed on Monday.

South Korea's exports also perked up in December albeit at a slower pace as weaker Chinese demand offset robust global sales for semiconductors, data showed on Monday.

(Reporting by Indradip Ghosh and Sam Holmes; Editing by Susan Fenton)

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