Global factory activity slows in late 2023

As 2023 comes to an end, a series of reports point to a slowdown in global manufacturing, with particular weakness in the Eurozone and Asia. The S&P Global report showed that the euro zone manufacturing purchasing managers’ index (PMI) edged up to 44.4 in December from 44.2 in November, but still showed a narrowing that remained below the 50 threshold, indicating growth. This marks the 18th consecutive month of contraction in the region.

Klaus Westersen, chief euro zone economist at Pantheon Macroeconomics, noted that while optimism about the future has risen slightly, the outlook remains challenging. The euro zone economy contracted by 0.1% in the third quarter, and continued contraction in the last quarter may indicate a technical recession.

Manufacturing activity in Germany, the euro zone’s largest economy, also fell in December, with the supplementary index measuring euro zone factory output falling slightly to 44.4 from 44.6 in November, although it was slightly better than the preliminary estimate of 44.1.

The UK manufacturing PMI fell to 46.2 in December, interrupting three months of improvement. The U.S. is also expected to release data that could show a decline in manufacturing at the end of 2023.

Asia’s manufacturing landscape is also facing challenges, with factory activity declining in South Korea and Taiwan. The situation in China is mixed; the Caixin PMI unexpectedly increased in December, while the official PMI remained in contraction territory for the third consecutive month. Wang Zhe, senior economist at Caixin Think Tank, highlighted improvements in China’s manufacturing sector but also pointed to ongoing issues such as employment challenges and business caution.

Despite Beijing’s policy efforts to stimulate the economy after the epidemic, China still faces headwinds such as a severe real estate downturn and weak global demand. Other Asian countries such as Malaysia and Vietnam also reported contractions in their manufacturing sectors, although Indonesia accelerated slightly.

Despite the mostly pessimistic December PMI data, there are some positive signs of recovery in the region. Singapore’s fourth-quarter gross domestic product grew on the back of strength in construction and manufacturing. South Korea’s exports also rose in December, but at a slower pace due to reduced demand from China.

The release of India PMI on Wednesday and Japan PMI on Thursday is expected to shed further light on the health of Asia’s economies.

Reuters contributed to this article.

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