Global manufacturing growth slows as China, Ukraine hit supply chain

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Global manufacturing growth slows as China, Ukraine hit supply chain

In May, global growth in factory activity slowed as China's strict coronavirus curbs and Russia's invasion of Ukraine disrupted supply chains and hurt demand, which added to the woes for businesses struggling with surging raw material prices.

Business surveys showed that manufacturing growth slowed last month in countries as diverse as France, Japan and Malaysia, illustrating the challenge that policymakers face in trying to combat inflation while not stifling anaemic economic activity.

S&P Global's final manufacturing Purchasing Managers' Index PMI fell to 54.6 in May from April's 55.5, its lowest since November 2020, just ahead of a preliminary reading of 54.4. In Britain, manufacturing activity increased last month at the weakest rate since January 2021, as producers of consumer goods struggled against a worsening cost-of-living crunch.

Simon Jonsson, an associate at KPMG, said that inflation is driving up the cost of doing business and dampening consumer demand.

The conflict in Ukraine has exacerbated supply shortages, while border friction in China and COVID 19 restrictions in China have adversely impacted UK manufacturing. China's Markit Manufacturing PMI showed a further contraction, at 48.1 in May, but improved slightly from April's 46.0, according to a private survey. That was in line with factory activity data released on Tuesday.

While COVID curbs are being rolled back in some cities, analysts do not believe that China's manufacturing slump has bottomed out, and fear of new outbreaks will weigh on confidence and demand.

As the lock down ends, the disruptions to supply chains and goods distribution may gradually ease. But we're not out of the woods as China hasn't abandoned its zero-COVID policy altogether, said Toru Nishihama, chief economist at Dai-ichi Life Research Institute in Tokyo.

Rising inflation is forcing Asian central banks to tighten their monetary policy. There is the risk of market volatility due to U.S. interest rate hikes. Asia's economy may not be strong for most of the year due to the layers of risks. Both Japan and South Korea reported sharp declines in output as a result of the lockdowns in China's global logistics and supply chains.

Japan's manufacturing activity grew at the weakest pace in three months in May, and manufacturers reported a renewed rise in input costs, the PMI survey showed, as the knock-on effects of China's lockdowns and the Ukraine conflict pressured the economy.

The final au Jibun Bank Japan PMI fell to 53.3 in May from 53.5 in May, its slowest pace since February.

In a glimmer of hope, South Korea's exports increased faster in May than in a month earlier, as a rise in shipments to Europe and the United States more than offset fallout from China, according to separate data released on Wednesday. The monthly trade data, the first to be released among major exporting economies, is considered a bellwether for global trade.

India's factory activity increased at a higher than expected pace in May, with demand resilient despite persistently high inflation.