Northern Europe and Japan see accelerating output, while China weakens
Strong global manufacturing activity—particularly in northern Europe and parts of Asia—points to near-term opportunities and strong investment demand in H1 2022, which B2B firms should position themselves to capitalize on. However, companies should expect rising input costs and supply shortages to persist for the next several months. Continue to monitor PMI data on your regional markets, for clues into fast-moving developments around pricing trends as well as overall demand.
Overview
Global manufacturing expanded in January, but activity rose at the slowest pace in 15 months, according to recent surveys of purchasing managers. The slowdown was driven by several factors: weaker growth in new orders, a decline in international trade volumes, and supply chain disruptions. In addition, a global COVID-19 wave driven by the Omicron variant exacerbated labor shortages, as manufacturing workers have missed work due to illness, self-isolation requirements, and caretaking responsibilities. Bright spots include Northern Europe (the UK, Germany, and the Netherlands), which is seeing an acceleration in manufacturing growth on the back of strong international demand. Japan’s Purchasing Managers’ Index (PMI) has likewise jumped to its strongest reading since 2014, with both output and new orders growing sharply. On the negative side, Brazil’s, Mexico’s, and China’s manufacturing sectors fell into contractionary territory in January. In Brazil, consumer goods firms saw a notable drop in new business, attributable to high inflation eroding purchasing power among Brazilian consumers. Mexican manufacturing suffered from virus-related labor shortages and declining international demand. In China, output slowed as COVID-19 outbreaks and fresh restrictions weighed on the sector.
Our View
Although data points to a slight weakening in global manufacturing, this is likely to be a blip driven by Omicron-related disruptions. Across most markets, confidence is exceptionally high, as are future growth expectations. Overall, PMI surveys continue to paint a picture of strong global manufacturing demand amid tight operating conditions. Vendor lead times and delivery times continue to lengthen. Both input price and selling price inflation remain high across markets. A key area of concern to watch is China’s manufacturing sector, as any prolonged contraction there will weigh on global manufacturing and growth.
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