Global manufacturing activity hit hard by supply chain bottlenecks and rising costs

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Staff work on a Volkswagen assembly line in Wolfsburg, Germany, April 27, 2020.

SWIMMING POOL New / Reuters

Global manufacturing activity has been hit hard by supply chain bottlenecks and escalating costs, exacerbated by pandemic-induced factory closures in Asia and signs of slowing Chinese growth , surveys showed on Friday.

While countries where outbreaks of the Delta coronavirus variant have receded have seen an improvement in activity, growth has declined in some as chip shortages and supply disruptions have impacted those who still struggling to get rid of the COVID-19 hit.

Manufacturing growth in the Eurozone and Britain remained strong, but activity suffered from logistics challenges, product shortages and a labor shortage that are expected to persist and maintain inflationary pressures high.

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“While some of the bottlenecks are expected to begin to ease soon, many industries – especially those requiring semiconductors – are expected to face disruption for much of 2022,” said Martin Beck, economic adviser. principal of the EY ITEM club.

“This signals that activity will likely remain limited for some time.”

IHS Markit’s final Purchasing Managers’ Index (PMI) fell to 58.6 in September from 61.4 in August and the UK PMI fell for the fourth consecutive month from 60.3 to 57.1 . Anything over 50 indicates growth.

Factories in Germany, Europe’s largest economy, buzzed almost undisturbed during pandemic shutdowns that impacted the service sector, but shortages of intermediate goods and some raw materials are now holding back the industry.

The growth of the French manufacturing industry weakened a little more than initially expected, according to its PMI, the problems of supply of goods weighing on the industry.

These supply bottlenecks have kept the pressure on the costs of raw materials needed by factories and manufacturers passed on some of these increases to customers and the Eurozone producer price index. ‘has approached the record high for the summer.

Inflation in the common currency area jumped to a 13-year high of 3.4% last month, according to preliminary official data released on Friday, well above the central bank’s target of 2.0% European.

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Manufacturing growth in the United States also weakened last month, according to data due later on Friday.

ASIAN STRAIN

China’s declining economic momentum has dealt a further blow to the region’s growth prospects, with official PMI showing on Thursday that the country’s factory activity contracted unexpectedly in September due to broader restrictions of electricity consumption.

Although the Caixin / Markit private manufacturing PMI index has performed better than expected after the fall in August, growing signs of weakness in the world’s second-largest economy are clouding the outlook for neighboring countries.

“While the coronavirus restrictions on economic activity can be gradually lifted, the slowness at which this will occur means that the economies of Southeast Asia will stagnate for the rest of the year,” Makoto Saito said, economist at the NLI Research Institute.

Manufacturers in Japan, the world’s third-largest economy, have come under pressure from pandemic restrictions and increased supply chain disruptions along with raw material shortages and delivery delays and its PMI has marked its pace of expansion on slower since February.

The activity of the Taiwanese factories continued to develop but at its slowest pace in more than a year while the Vietnamese index remained unchanged.

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The PMIs of South Korea, India and Indonesia increased.

“While regional PMIs have shown that the disruption caused by large waves of viruses in the region is easing somewhat, unfulfilled orders continue to pile up, meaning that the resulting shortages further into the supply chains are expected to persist for some time, ”said Alex Holmes, emerging Asia economist at Capital Economics.

Once seen as an engine of global growth, emerging economies in Asia are lagging behind advanced economies in recovering from the pain of the pandemic as delays in vaccine deployment and a spike in Delta variant cases hamper for consumption and factory production.

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