International Demand

The rebound in global manufacturing is running out of steam

The resurgence of manufacturing in Europe and Asia eased in March as factories faced worsening supply shortages and soaring costs after Russia invaded Ukraine.

It’s the latest signal of the extent of the ripple effects of war, and another setback for countries that were poised to rebound stronger from the latest wave of covid-19 infections.

The Eurozone Purchasing Managers’ Index fell to a 14-month low, although at 56.5 it remains well above the 50 level that separates expansion from contraction. Germany and France, the two largest economies in the currency bloc, both lost steam.

“Just as the disappearance of the last pandemic wave created a tailwind for the Eurozone manufacturing recovery, with economies reopening and supply chain bottlenecks easing, the war in Ukraine has created a worrying new headwind,” Chris Williamson, chief economist at S&P Global, said on Friday.

In Asia, the manufacturing hubs of South Korea and Vietnam saw the largest declines in their PMIs. Taiwan, Thailand and Malaysia also fell, with the latter slipping below 50.

Japan’s gauge accelerated as dwindling virus cases allowed factories to ramp up production, according to Jibun Bank. Indonesia and the Philippines also registered improvements.

Asian economies are relying on their manufacturing sectors to help the recovery, while virus curbs are dampening traditional consumption growth engines.

For China, a private gauge of manufacturing activity fell in March in the biggest way since the start of the pandemic, as Covid-19 lockdowns weighed on output and sales. The Caixin Manufacturing Purchasing Managers’ Index fell to 48.1 from 50.4 in February, Caixin and S&P Global said in a statement.

The reading came a day after the official manufacturing and non-manufacturing PMIs for March posted bigger-than-expected declines and slipped into contractionary territory for the first time in about six months.

A slowdown in Asia has potential repercussions for the rest of the global economy. The region is the world’s top manufacturing base, and its exports ranging from energy to food are key to boosting supplies and lowering prices in countries beginning to emerge from the pandemic.

In a warning sign for global demand given its status as a weather vane for trade, South Korean new export orders fell at their fastest rate since July 2020. Input price inflation reached a peak in three months.

“Manufacturing companies have noted the impact that economic sanctions against Russia and the war with Ukraine have had on international demand,” Usamah Bhatti, economist at S&P Global, said in a statement.