Global manufacturing rebound falters as invasion takes its toll

The manufacturing resurgence in Europe and Asia softened in March as factories saw worsening supply shortages and soaring costs after Russia’s invasion of Ukraine.

It’s the latest signal of how far the ripple effects from the war have spread, and another setback for countries that were poised to rebound more strongly from the latest wave of Covid-19 infections.

The purchasing managers’ index (PMI) for the euro area sank to a 14-month low, though at 56.5 remained well above the 50 level that separates expansion from contraction. Germany and France, the currency bloc’s two top economies, both lost steam.  

“Just as the fading of the latest pandemic wave was creating a tailwind for the euro-zone manufacturing recovery, with economies reopening and supply-chain bottlenecks easing, the war in Ukraine has created an ominous new headwind,” Chris Williamson, chief business economist at S&P Global, said Friday.

In Asia, manufacturing hubs South Korea and Vietnam saw the sharpest downturn in their PMIs. Taiwan, Thailand and Malaysia also declined, with the latter slipping below 50.

Japan’s gauge accelerated as dwindling virus cases allowed factories to ramp up production, according to compiler au Jibun Bank. Indonesia and the Philippines also saw improvements.

Asian economies are relying on their factory sectors to help drive recoveries, while virus curbs hold back traditional growth engines of consumption.

Rising energy costs and ongoing supply disruptions mean the region’s PMIs will likely soften further, said Chua Hak Bin, senior economist at Maybank Investment Banking Group in Singapore.

For China, a private gauge of manufacturing activity dropped in March by the most since the pandemic’s onset as Covid lockdowns took a toll on production and sales. The Caixin Manufacturing Purchasing Managers’ Index fell to 48.1 from 50.4 in February, Caixin and S&P Global said in a statement.

That reading came a day after both the official manufacturing and non-manufacturing PMIs for March posted larger-than-expected declines and slipped to contraction territory for the first time in roughly half a year.

A slowdown in Asia has potential knock-on effects for the rest of the global economy. The region is the world’s top manufacturing base, and its exports ranging from energy to food are critical in augmenting supplies and tamping down prices in nations beginning to emerge from the pandemic.

In a warning sign for global demand given its status as a weather vane for trade, South Korean new export orders fell by their quickest pace since July 2020. Input price inflation hit a three-month high.

“Manufacturing firms noted the impact that economic sanctions on Russia and the war with Ukraine had on international demand,” Usamah Bhatti, an economist at S&P Global, said in a release.

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