Euro zone manufacturing returns to growth in July

PMI reveals modest expansion, zone’s first since early 2019

In this Feb. 13, 2020, photo released by Xinhua News Agency, workers wearing masks labor at a factory for Chinese telecommunications company OPPO in Dongguan, in southern China's Guangdong Province. Factories in China, struggling to reopen after the coronavirus shut down the economy, face a new threat from U.S. anti-disease controls that might disrupt the flow of microchips and other components they need. For most people, the new coronavirus causes only mild or moderate symptoms. For some it can cause more severe illness. (Chen Yuxuan/Xinhua via AP)

Euro zone manufacturing activity expanded modestly last month, its first growth since early 2019, and Asia’s pain eased as the contraction slowed in export-reliant nations, adding to hopes the sector is emerging from the hit of the pandemic.

With still-rising COVID-19 infections — and the risk of renewed lockdowns increasing — the chances of any rebound reversing course have risen and the world economic outlook has dimmed again, according to Reuters polls of over 500 economists globally.

Still, while the euro zone economy contracted a record 12.1% last quarter, a Reuters poll predicted 8.1% growth for the current one.

Factories appear to be playing their part in the bloc’s potential recovery, and IHS Markit’s final Manufacturing Purchasing Managers’ Index bounced to 51.8 in July for the euro zone from June’s 47.4 — its first time above the 50 mark separating growth from contraction since January 2019.

“It’s positive, they are going in the right direction. But the very fact most of the European numbers are in the low 50s suggests there is an awful long way to go,” said Peter Dixon at Commerzbank.

Manufacturing activity in China expanded at the fastest pace in nearly a decade as domestic demand improved, a survey showed, suggesting the world’s second-largest economy would help cushion the blow to global growth.

The Caixin/Markit Manufacturing PMI rose to 52.8.

Asia stabilises

Japan and South Korea saw factory activity shrink at a much slower pace, a sign pressures on manufacturers were easing.

Taiwan’s manufacturing activity also rose above the 50-mark, suggesting increased demand for work-from-home equipment is underpinning chip sales.

“While the broad steadying of the PMI prints across the region point towards further stabilisation in regional manufacturing... the path ahead remains a rocky one,” said Wellian Wiranto, an economist at OCBC Bank.