Global factories are shaking off COVID-19 gloom, outlook shaky

Factories across the world continued to shake off the coronavirus gloom in August as the global economy gradually emerges from a downturn triggered by the health crisis, thanks in part to massive fiscal and monetary stimulus programmes.

Surveys showing an expansion in manufacturing activity may reduce pressure on policymakers to take bolder steps to avert a deeper recession. Many analysts expect recovery to be feeble, however, as renewed waves of infections curb business activity and prevent some nations from fully reopening their economies.

Fears of a resurgence in infections in some economies may discourage firms from boosting capital expenditure and delay a sustained rebound, some analysts say.

Euro zone manufacturing activity remained on a recovery path last month but factory managers were wary about investing and hiring workers as the pandemic rages on.

Manufacturing output, which didn’t suffer quite as sharp a decline as the services industry during coronavirus lockdowns, increased for a second straight month.

IHS Markit’s final Manufacturing Purchasing Managers’ Index (PMI) dipped to 51.7 in August from July’s 51.8, in line with an earlier flash reading and comfortably ahead of the 50 mark separating growth from contraction.

“Some modest good news, the manufacturing sector for now remains a bit of a bright spot. Short-term work schemes across Europe are working so well that unemployment has increased to just 7.9% -- without them unemployment would be around 10%,” said Bert Colijn at ING.

German manufacturers’ recovery from lockdown measures continued last month, but in France activity slipped back into contractionary territory as the second-biggest euro zone economy grappled with hits to business caused by the pandemic.

British factory output recovered some ground lost as output rose at the fastest pace in more than six years.

Manufacturing activity in China expanded at the fastest clip in nearly a decade in August, as factories ramped up output to meet rebounding demand, a private survey showed. New export orders rose for the first time this year.

The upbeat findings contrasted with an official survey on Monday, which showed China’s factory activity grew at a slightly slower pace in August.

China’s Caixin/Markit PMI rose to 53.1 in August from July’s 52.8, marking the biggest rate of expansion since January 2011.

Japan and South Korea both saw factory output contract at the slowest pace in six months, reinforcing expectations the region’s export powerhouses are past the worst from a collapse in demand after COVID-19 struck.

The spill-over to other parts of Asia, however, remains patchy. While manufacturing activity rose in Taiwan and Indonesia, it slid in the Philippines, Vietnam and Malaysia.

India’s factory output grew in August for the first time in five months as the easing of lockdown restrictions spurred demand. But analysts do not expect a quick turnaround in the economy, which contracted at its steepest pace on record last quarter.

While South Korea’s exports fell for a sixth straight month in August, trade data -- first to be reported among major exporting economies -- signalled a gradual recovery in global demand.

Japan is meanwhile in the midst of a leadership change after Prime Minister Shinzo Abe said last week he would step down, raising uncertainty about the policy outlook.

US manufacturing activity: US manufacturing activity accelerated to a nearly two-year high in August aided by a surge in new orders, but employment at factories continued to lag amid safety restrictions intended to slow the spread of COVID-19.

The upbeat report from the Institute for Supply Management (ISM) strengthened expectations for a sharp rebound in economic activity this quarter, though the improvement in manufacturing remained uneven as the coronavirus pandemic boosted demand for goods like home electronics at the expense of heavy-duty equipment like machinery and aircraft.

The ISM described sentiment as “generally optimistic, though to a lesser degree compared to July.” The ISM said its index of national factory activity increased to a reading of 56.0 last month from 54.2 in July. That was the highest level since November 2018 and marked three straight months of growth.

A reading above 50 indicates expansion in manufacturing, which accounts for 11% of the US economy. Economists polled by Reuters had forecast the index would rise to 54.5 in August.

In contrast, manufacturers of electrical equipment, appliances and components reported “strong demand from existing and new customers.” Similar sentiments were echoed by makers of chemical, wood and fabricated metal products.

Stocks on Wall Street rallied on the data. The dollar was steady against a basket of currencies. US Treasury prices fell.

Most European Stock markets closed lower on Tuesday and London fell sharply after data showed that consumer inflation in the euro area fell in August and manufacturing activity began to soften.

Agencies