China’s economy leading while EU and U. S. struggling with inflation
2023.03.01 11:44
China’s economy leading while EU and U. S. struggling with inflation
By Ray Johnson
Budrigannews.com – While data from the United States and Europe highlighted that inflation in both regions was still not under control, China’s factory sector grew in February at the fastest rate in more than a decade, giving hope for a global economy recovery.
China’s manufacturing purchasing managers’ index (PMI), which was released on Wednesday, climbed to 52.6 last month from 50.1 in January. A private sector survey also showed growth for the first time in seven months, adding to evidence that activity is recovering in China following the removal of strict COVID-19 restrictions.
According to Pantheon Macroeconomics’ Duncan Wrigley, “China’s PMIs beat market expectations across the board, propelled by the reopening after dropping COVID restrictions and the resumption of activity after the lunar new year holiday.”
“This is an encouraging set of data, but it’s only been one month, so there are still challenges.”
On Wednesday, Asian stocks recovered from a two-month low and were on track for their best day in seven weeks. Oil prices rose around the world, highlighting how a strong Chinese recovery could fuel global inflation by driving up demand for energy.
The inflationary impact of China’s higher energy demand may be offset by the additional supply of goods it contributes to the global economy, so it is still unclear how a robust Chinese recovery might ultimately impact prices elsewhere.
In February, manufacturing in the United States contracted for the fourth month in a row. However, there were indications that factory activity was beginning to stabilize, with a measure of new orders rising from a 2-1/2-year low.
The manufacturing PMI from the Institute for Supply Management (ISM) came in at 47.7 in February, down from 47.4 in January. The Reuters poll of economists predicted that the index would rise to 48.0. A reading below 50 indicates a decline in manufacturing, which contributes 11.3% of the economy to the United States.
At 45.2, the survey’s measure of supplier deliveries remained unchanged. A reading below 50 indicates quicker factory deliveries.
Inflation has flared, with both consumer and producer prices recording significant monthly gains in January despite an increase in supply and a decrease in demand.
The ISM survey’s measure of prices paid by manufacturers increased to 51.3 in February from 44.5 in January, the highest level since September, indicating that inflation may continue to rise.
Andrew Hunter, deputy chief U.S. economist at Capital Economics, stated, “The sharp rebound in the prices paid index… is a potential concern to the extent that it signals that recent economic resilience is putting renewed upward pressure on inflation.”
After a reacceleration in key inflation gauges, the Federal Reserve is likely to keep raising interest rates into the summer, making a quick turnaround in manufacturing unlikely. The dollar’s past appreciation against the currencies of the United States’ main trade partners and weakening global demand are also hurting manufacturing.
German data demonstrated that the fight against inflation also has a long way to go in Europe. In February, prices in the largest economy in the region increased by 9.3% year-over-year, exceeding analysts’ expectations of a rise of 9.0% and surpassing January’s increase of 9.2%.
This came after readings earlier this week revealed that prices were rising faster than anticipated in France and Spain, challenging the notion that inflation had clearly reached its peak in the region.
“The interest rate step announced for March will not be the last,” Bundesbank President Joachim Nagel stated of the European Central Bank’s strongly signaled intention to raise rates by 50 basis points this month throughout the Euro Zone.
He added, “Further significant interest rate steps might even be necessary later.”
In its own right, S&P Global (NYSE:) The output index, which feeds into a composite PMI due on Friday and is regarded as a good gauge of overall economic health, climbed to 50.1 from 48.9, while the headline factory PMI for the Euro Area fell to 48.5 from 48.8.
Chris Williamson, chief business economist at S&P Global, stated, “The brighter production picture first and foremost reflects a broad-based improvement in supply chains, with deliveries of inputs into factories quickening on average to a degree not seen since 2009.”
British manufacturing activity decreased last month outside of the euro area, but at the slowest rate since July, and factories were more optimistic as the threat of a severe recession diminished.
India’s and Australia’s economic growth slowed in the quarter that ended in December, and South Korea’s exports fell for the fifth month in a row in February, highlighting the hardship that the region’s manufacturers were experiencing as a result of the slowing of global demand.
The weaker data in the region shows how difficult it is for Asian policymakers to control inflation with higher interest rates without stifling economic recoveries already under pressure from the global slowdown.
For export-dependent economies like Japan, headwinds from weak chip demand and supply constraints may not be enough to offset China’s recovering economy, which is the second largest in the world.
The final au Jibun Bank PMI in Japan dropped from 48.9 in February to 47.7, the fastest rate in more than two years.
The Bank of Japan’s belief that the economy was on track for a steady recovery was cast into question by data showing a significant drop in factory output in Japan in January due to falling production of automobiles and semiconductor equipment.
According to surveys, factory activity continued to decline in Taiwan and Malaysia in February, while it expanded more slowly in the Philippines.
According to its PMI survey, India’s manufacturing activity expanded in February at the slowest rate in four months, but it remained relatively strong despite buoyant domestic demand.
Separate data revealed that South Korea’s exports decreased by 7.5% in February compared to the previous year. This was the fifth month in a row that exports had decreased, and one reason for the decrease was a drop in semiconductor exports.
