BENGALURU/TOKYO (Reuters): Euro zone factory activity expanded for the first time since mid-2022 as domestic demand offset the impact from U.S. tariffs while the Asian manufacturing sector saw shrinkage, private surveys showed on Monday.
There were mixed signals over the Chinese economy, however, as one such survey unexpectedly indicated modest expansion, contradicting an official readout the day before which showed activity continuing to shrink.
Export powerhouses Japan, South Korea and Taiwan all saw manufacturing activity shrink in August, underscoring the challenge Asia faces in weathering the hit from sharply higher trade barriers erected by U.S. President Donald Trump.
In Europe, Greece and Spain led factory growth while manufacturing in Germany, the bloc’s largest economy, shrank albeit at a slower pace.
The HCOB Eurozone Manufacturing Purchasing Managers’ Index (PMI) rose to an over-three-year high of 50.7 in August from 49.8 in July, surpassing the 50.0 threshold that separates growth from contraction.
“The recovery is real but remains fragile. Inventory levels continue to decline, and the slightly accelerated drop in order backlogs shows that companies are still suffering from uncertainty,” said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.
“Domestic orders have risen and are offsetting the weakening demand from abroad. In fact, the best remedy against U.S. tariffs may be to strengthen domestic demand.”
Meanwhile, manufacturing in Germany rose to a 38-month high of 49.8, a whisker away from the 50 mark, offering hope for the economy that shrank 0.3% last quarter on slowing demand from its top trading partner the U.S.
The EU and the U.S. struck a framework trade deal in late July but only the baseline tariff of 15% has so far been implemented.
In Britain, outside the European Union, factory activity suffered a fresh setback in August after signs of a recovery due to worries about trade tensions and tax increases at home.
ASIA SUFFERS
The S&P Global Japan Manufacturing Purchasing Managers’ Index (PMI) stood at 49.7 in August, improving from 48.9 in July but staying below the 50 threshold for two straight months.
South Korea’s factory activity also shrank with the S&P Global PMI standing at 48.3 in August, up from 48.0 in July but contracting for the seventh straight month.
Both countries struck a trade deal with the U.S. that eased, but not removed, the pressure on their export-reliant economies.
“It’s a double-whammy for Asian economies, as they face higher U.S. tariffs and competition from cheap Chinese exports,” said Toru Nishihama, chief emerging market economist at Dai-ichi Life Research Institute.
“We’ll likely see the hit from U.S. tariffs intensify going forward, with countries reliant on U.S.-bound shipments like Thailand and South Korea particularly vulnerable,” he said.
However, the RatingDog China General Manufacturing PMI, compiled by S&P Global, unexpectedly rose to 50.5 in August from 49.5 in July, exceeding the 50-mark that separates growth from contraction.
The reading confounds an official survey on Sunday that showed activity shrank for a fifth straight month on weak domestic demand and uncertainty over the outcome of Beijing’s trade deal with the U.S.
Half-way through the month Trump extended his tariff truce with China for another 90 days, withholding imposition of three-digit duties until November 10.
Meanwhile, India, which grew at a much better-than-expected 7.8% in the last quarter, continued to be a significant outlier in the region. Manufacturing activity in Asia’s third-largest economy expanded at its fastest pace in more than 17 years in August.
But the Trump administration’s steep 50% tariff on U.S. imports of Indian goods like garments, gems and jewellery threatens to dampen growth in the coming quarters.
