Factory Activity Defies War-Related Cost Pressures in June
Euro zone manufacturing output closed out its best quarter since early 2022 last month while an AI boom powered Asian producers, business surveys showed on Wednesday, offering some relief from the U.S.-Israeli war with Iran.
Cost pressures did dip but they remain elevated as supply shortages and shipping delays lengthened lead times, suggesting the energy shock tied to the Middle East conflict could intensify.
S&P Global noted that most survey responses were collected before the signing of a memorandum of understanding for a ceasefire between the U.S. and Iran on June 17, meaning the full impact on supply chains and energy costs is not yet captured in the PMI data.
Inflation in the common currency area was less than expected last month, coming in at 2.8%, but still well above the European Central Bank’s 2.0% target, official data showed.
“The inflation rate in the euro zone fell noticeably in June,” said Ralph Solveen at Commerzbank. “A key reason is that oil prices fell significantly over the past month due to the partial reopening of the Strait of Hormuz.”
On June 11 the ECB raised interest rates as a war-related energy cost surge had pushed inflation over 3%, well in excess of its 2% target.
The S&P Global Eurozone Manufacturing PMI (INPMI=ECI), slipped to a four-month low of 51.4 in June from May’s 51.6 but remained above the 50.0 threshold separating growth from contraction for a fifth month. The reading was just above a preliminary estimate of 51.3.
German factory activity expanded modestly while France’s grew slightly faster than initially forecast. In Britain manufacturing cooled despite a boost to output from stockpiling ahead of price hikes.
ARTIFICIAL SUPPORT
For now, surveys underscore how the global AI investment wave is reshaping Asia’s economic fortunes. Booming demand for chips, data-centre equipment and other technology goods provides a powerful engine for growth and acts as a critical buffer against mounting geopolitical and trade risks.
China, Japan and South Korea saw factory activity expand in June on solid demand for chips, computers and other AI-related products, as well as stockpiling by firms seeking to guard against shortages and price rises from the Middle East conflict.
RatingDog General Manufacturing China PMI hit 51.7 in June, expanding for a seventh straight month. It eased from May’s 51.8 but exceeded analysts’ forecast of 51.6.
The finding aligned with an official survey on Tuesday showing factory activity returned to expansion last month on robust export orders.
Japan’s PMI rose to 54.8 from 54.5, expanding for a sixth consecutive month with new orders growing at their fastest pace in more than two years.
But input cost inflation stayed at a nearly four-year high, a sign of mounting price pressures that could crimp corporate margins and lead to broad-based inflation.
South Korea’s factory activity expanded for a seventh consecutive month although at a slower pace on falling export demand.
“Firms frequently reported that rising raw material prices, alongside difficulties sourcing and receiving inputs due to delays and shortages, weighed on sector performance,” said Usamah Bhatti, economist at S&P Global Market Intelligence.
Factory activity in most Asian emerging economies continued to expand. The Philippines held steady at 50.9 from 50.8 and Malaysia rose to 50.7 from 49.9, surveys showed.
Taiwan and Vietnam also saw factory activity expand.
A separate survey showed India’s manufacturing sector expanded at its second-slowest pace in four years as export orders suffered from softer demand in Europe.
Reporting by Jonathan Cable and Leika Kihara; Editing by Sam Holmes, Shri Navaratnam and Hugh Lawson
This article was first reported by Reuters
