Manufacturing Production Revives in the US, China, and Europe... But Demand Recovery Remains Uncertain

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] The manufacturing sectors of major countries such as the United States, Europe, and China, which had slumped due to the impact of the novel coronavirus infection (COVID-19), are recovering. Factories have increased production by expanding operating levels following the lifting of lockdown measures. However, uncertainties in the economy remain high due to the resurgence of COVID-19, preventing this from translating into increased demand driven by the recovery of global trade.

According to the Wall Street Journal (WSJ) and others on the 3rd (local time), IHS Markit reported that the U.S. manufacturing Purchasing Managers' Index (PMI) for July rose to 50.9 from 49.8 in the previous month, surpassing the 50-point threshold. The Institute for Supply Management (ISM) also announced that the U.S. manufacturing PMI increased from 52.6 in June to 54.2 in July. A PMI below 50 indicates contraction in business activity, while above 50 indicates expansion.

This trend is also seen in Europe and China. The Eurozone manufacturing PMI for July recorded 51.8, exceeding the 50-point mark for the first time this year. In Germany, the largest economy in the Eurozone, the finalized July manufacturing PMI was 51.0, surpassing the preliminary figure. China's Caixin manufacturing PMI for July also showed gradual improvement, rising from 49.4 in April to 50.7 in May, 51.2 in June, and 52.8 in July. Australia’s manufacturing PMI increased from 53.4 in June to 54.0 in July. The manufacturing sector appears to be recovering.

The rise in manufacturing PMI seems to be driven more by the resumption of factory operations than by increased demand. Global trade recovery is slow, weakening demand for goods produced overseas. The World Trade Organization (WTO) forecasts that trade transactions will decrease by at least 13% this year. Trade experts believe that companies are under pressure to simplify or reduce global supply chains due to the COVID-19 crisis, which burdens trade. Companies focused on exports are also taking cost-cutting measures such as workforce reductions for this reason.

Timothy Fiore, chairman of ISM, said, "There is uncertainty about whether the economic activity reopening can be sustained long enough to expand production sufficiently." Wang Jie, chief economist at Caixin Insight Group, also noted, "Attention needs to be paid to weakness in employment and overseas demand." Chris Williamson, chief economist at IHS Markit, forecasted, "Economic indicators over the coming months will be important in assessing whether the recent increase in demand can be sustained."

The WSJ reported that these economic indicators suggest that easing lockdown measures alone is insufficient to return the global economy to a normal trajectory. In fact, countries with a high export ratio such as Korea and Japan are still recovering at a somewhat slow pace. Korea’s manufacturing PMI improved from 43.4 in June to 46.9 in July but remained below the 50-point threshold. Japan’s PMI also rose from 40.1 to 45.2 during the same period but has yet to enter the expansion phase.

The WSJ emphasized that countries relying on exports as a core pillar of their economy need to devise alternative measures to boost domestic demand in place of trade. Bernard Aw, economist at IHS Markit, suggested that increasing government spending through large-scale infrastructure projects in countries like China and Australia would help stimulate related manufacturing sectors such as machinery. In the UK, Duncan Brock, group director of the UK Public Procurement Supply Research Institute, revealed that manufacturers began considering establishing domestic supply bases last month to align with rising domestic demand.

This content was produced with the assistance of AI translation services.