Manufacturers across Europe and much of Asia delivered yet another month of robust growth in March. Despite exporters fearing the rise in US protectionism which could put a stop to global trade recovery, last month’s manufacturing growth results managed to round off a solid quarter for factories.
According to surveys on Monday, China ranked among the countries, with an official manufacturing index growing at the fastest pace in almost five years. The surveys also presented encouraging progress in Europe, Japan, India and most emerging nations in Asia.
In the euro zone, IHS Markit's final manufacturing Purchasing Managers' Index (PMI) climbed to a roughly six-year high of 56.2 in March, above the 50 point that separates growth from contraction. British manufacturers, however, lost some momentum in March, due to a slowdown in export orders and rising inflation that cut into consumer demand.
Sterling's decline following June's Brexit helped factories to enjoy their fastest annual growth in three years during the final quarter of 2016. However, the sector's PMI implied growth slowed in the first three months of this year.
“Greater optimism about global growth prospects appears to be providing a boost, while the fall in the value of the pound post-Brexit is helping new orders,” James Smith at ING said of the UK’s PMI. He added that while the near-term outlook for manufacturing looked upbeat, “it’s possible that Brexit uncertainty will start to weigh more heavily on sentiment over coming months.”
Official Chinese PMI released last week grew to 51.8 in March from a previous 51.6. The construction boom in China that ran for months helped boost resources prices around the world.
That was the strongest reading since April 2012, though a private survey concentrating on smaller companies implied a more cautious outlook, worrying about whether the export recovery can be maintained.
Meanwhile, Japanese factory activity greatly expanded, though the pace slowed from February as growth in new export orders and output slumped.
Readings have been mixed in South Korea, where exports comprised half of the economy and domestic demand is equally weak.
On a more positive note, India's manufacturing activity accelerated at the fastest pace in five months as output and new orders ramped up. The findings indicated the world's fastest-growing major economy has greatly recovered from Prime Minister Narendra Modi's decision to ban high-value currency notes in November.
Trump trade, US administration
However, the biggest threat to China may not be the export recovery concerns. US President Donald Trump is slated to hold his first meeting with his Chinese counterpart, Xi Jinping, later in the week. Discussions are speculated to be tense.
“Asia's economic backdrop remains solid with most countries remaining above the key threshold level of expansion, though US trade protectionism fears is the biggest uncertainty for now,” said Aidan Yao, an economist at AXA Investment Managers.
Previously on Friday, Trump sought to push his campaign against US trade deficits and for more manufacturing jobs back to the top of his agenda. He did so by ordering a study into the reasons of the trade deficits and a crackdown on import duty evasion.
The failure of the new US administration to establish healthcare reforms in March has also added to global worries Trump will struggle to pass the tax cuts and spending plans he pledged, which could lift demand in the world's largest economy.
Interruptions to the reflationary plans could see US orders and global investment slump in the next months as businesses become warier.
China may have strong domestic demand to bounce back on for now, but other export-reliant Asian economies are more exposed to vulnerability should Trump go on a trade offensive.
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