Global factory output fell in October due to widespread recession fears, high inflation, and China’s zero-COVID policy, according to business surveys released on Tuesday, adding to persistent supply disruptions and dimming recovery prospects.
Global inflation has risen as supply chains still recovering from the coronavirus pandemic have been hit by Russia’s invasion of Ukraine, forcing consumers to cut back on purchases.
Last month, manufacturing activity in the United States grew at its slowest rate since the first COVID-19 lockdown in May 2020, as the Federal Reserve’s aggressive push to raise interest rates in order to combat stubbornly high inflation cools demand for goods.
The Institute for Supply Management (ISM) reported on Tuesday that its manufacturing purchasing managers’ index (PMI) fell to 50.2 in October from 50.9 in September. A reading above 50 indicates that manufacturing, which accounts for 11.9% of the US economy, is expanding.
“A strong dollar, slowing demand, and unexpected supply shocks continue to stymie factory activity,” said Rubeela Farooqi, chief U.S. economist at High-Frequency Economics.
Despite the fact that overall manufacturing activity fell, the ISM survey’s forward-looking new orders sub-index rose to 49.2 last month from 47.1 in September, indicating some resiliency among US consumers despite the Fed’s actions to curb spending.
In other news, Canadian manufacturing activity fell for the third consecutive month in October, while British manufacturing fell for the first time since May 2020, indicating a deepening slowdown.
The final S&P Global UK Manufacturing Purchasing Managers’ Index (PMI) for October dropped to 46.2 from 48.4 in September, falling further below the 50-point threshold that distinguishes growth from contraction.
“The manufacturing sector appears to be on the verge of a recession, according to October’s PMI data,” said Gabriella Dickens, senior UK economist at Pantheon Macroeconomics.
Manufacturing PMIs for the eurozone are due on Wednesday and are expected to show that the ongoing downturn deepened last month as the cost of living crisis kept consumers wary. Meanwhile, in Switzerland, the PMI reading fell by 2.2 points but remained in positive territory at 54.9 points, demonstrating the local economy’s ongoing resilience.
Nonetheless, the challenging international environment, uncertainty over supply, and high energy prices are slowing Swiss factory activity, according to Credit Suisse analysts.
In October, factory activity fell in South Korea, Taiwan, and Malaysia, and expanded at the slowest rate in 21 months in Japan, highlighting the impact of slowing Chinese demand and persistently high import costs.
The Caixin/S&P Global Manufacturing PMI in China rose to 49.2 in October from 48.1 in September. The private sector survey was consistent with an official PMI released on Monday, which revealed that China’s factory activity fell unexpectedly in October.
“Asia is completely dependent on China. Its zero-COVID policy continues to disrupt supply chains and discourage Chinese tourists from visiting Asian tourist destinations. It also has a negative impact on the region’s exports “Toru Nishihama, chief economist at Tokyo’s Dai-ichi Life Research Institute, agreed.
“Another major risk is the rate at which interest rates in the United States rise. If the Federal Reserve keeps raising interest rates steadily, it could spark capital outflows from Asia and harm exports.” Analysts believe that further interest rate hikes in the United States will force other central banks to act to prevent sharp capital outflows by tightening their own monetary policies, even if it means cooling already soft economies.
The au Jibun Bank Japan Manufacturing PMI fell to 50.7 in October from 50.8 in September, marking the slowest growth since January of last year.
Toyota Motor Corp reported a 25% drop in quarterly profit and lowered its annual output target on Tuesday, highlighting how the pain of rising material costs and supply constraints outweighed the benefit of a weak yen.
South Korean factory activity fell for the fourth month in a row in October, while export orders fell for the eighth month in a row, according to the PMI. South Korean exports fell the most in 26 months, with shipments to China, its largest market, extending declines.
Taiwan and Malaysia experienced deeper contractions in manufacturing, while Indonesian activity expanded again in October, albeit at a slower pace than in September. India was an outlier, with factory activity increasing faster in October as demand remained strong.
The International Monetary Fund cut Asia’s economic forecasts last week, blaming global monetary tightening, rising inflation blamed on the Ukraine war, and China’s sharp slowdown for the region’s recovery prospects.
The ramifications of China’s strict COVID-19 restrictions continue to spread. This week, restrictions forced the temporary closure of Disney’s Shanghai resort and hampered Apple Inc iPhone production at a major contract manufacturing facility.
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