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The world’s factories are moving forward, providing vital support for economies, as renewed virus restrictions in some countries affect growth.
Manufacturing activity indices in the United States, China and parts of Asia improved in November, and Germany saw robust expansion, according to reports on Tuesday. In South Korea, a benchmark for world trade, exports increased by 4%, supported by growing demand for technological devices.
JPMorgan’s Global Manufacturing PMI expanded at one of the best rates in nearly a decade. The composite index produced with IHS Markit increased for the seventh month, rising 0.7 points to 53.7 as measures of production, new orders and export reserves increased. The employment indicator showed expansion for the first time in a year.
The strength of business activity in recent months is supporting the recovery, although the situation remains fragile as the world awaits developments in the race to obtain a coronavirus vaccine. That mix of hope and caution is reflected in comments from central bankers, and Federal Reserve Chairman Jerome Powell said Monday that there are still “significant” challenges ahead.
That was echoed in the latest outlook from the OECD, which cut its growth forecast for 2021 to 4.2% from 5% and called on governments to maintain fiscal support for businesses and households. He cautioned that a pattern of flare-ups and crashes is likely to continue for some time and that the risks of permanent damage are increasing.
Even within manufacturing, the main engine of the world economy right now, there are signs of weakness. Closures in the hospitality sector have affected the production of consumer goods, threatening jobs in multiple industries.
According to the latest IHS Markit surveys, China’s manufacturing index soared to a decade high in November. A separate official indicator also improved, momentum starting to trickle down to neighboring trading partners.
For now, China’s strength is also being felt in Europe, where German manufacturers mentioned the country’s demand in their November report. The factory indicator for Germany slipped slightly, but remained the strongest in Europe. That made up for renewed weakness in Spain and France.
“The sustained expansion should help soften the economic blow from the COVID-19 restrictions, which have hit the service sector hard,” said Chris Williamson, chief business economist at IHS Markit.
While the euro area is expected to contract this quarter, the forecast for a decline of 2.2% is much smaller than the close to 12% drop seen in the three months to June.
In the US, manufacturing showed its strongest expansion since September 2014, driven by stronger production and orders, according to data from IHS Markit. A similar measure from the Institute for Supply Management expanded at a slower pace, retreating from the strongest reading in two years.
The latest manufacturing readings are in line with the Bloomberg Trade Tracker, which over the past two months has shown a robust recovery from the pandemic, especially among Asian economies. With nearly all of the tracker’s indicators at or above the normal range, the board holds the healthiest record in its more than two-year history.
The electronics industry is enjoying particularly strong demand, helping power North Asian factories. South Korea’s semiconductor shipments increased 16% in November.
