Manufacturers around the globe performed strongly in November, but concerns about the protectionist leanings of US President-elect Donald Trump and an OPEC-induced oil price rally could curtail future growth. Factories across Asia and Europe ramped up activity and data due later on Thursday from the United States are expected to show manufacturers in the world’s largest economy also pushed harder on the accelerator.
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But some analysts cautioned November might be as good as it gets as the effects of vast monetary stimulus from central banks wear off.
“The strength in PMI numbers is unlikely to be sustained as much of it can be explained by previous stimulus measures,” said Julian Evans-Pritchard at Capital Economics.
Policymakers at the European Central Bank are expected to announce an extension to their asset purchase programme when they meet next week even after euro zone manufacturers enjoyed their best month in November since the start of 2014 and inflationary pressures, while still mild, picked up.
IHS Markit’s final manufacturing Purchasing Managers’ Index for the euro zone chalked up its highest reading since January 2014 in November, registering 53.7, in line with an earlier flash estimate and ahead of October’s 53.5. Anything above 50 indicates growth.
But British manufacturing growth cooled unexpectedly as factories grappled with soaring costs caused by the slump in sterling after Britain voted to leave the European Union. The weaker pound also failed to boost export orders as much as in previous months.
The Markit/CIPS UK PMI fell to 53.4 from 54.2, confounding expectations for a rise to 54.5 in a Reuters poll of economists.
James Smith at ING noted the British PMI figure was still higher than the immediate post-Brexit dip, but forecast a tougher environment ahead.
“We expect domestic demand to slow quite considerably next year as consumer spending gets hit by falling real wages and investment slows in response to post-Brexit uncertainty,” he said.
Britain’s economy has performed much better than expected since the vote to quit the EU. But a bigger test will come next year when inflation is predicted to rise sharply, eating into households’ spending power that had just started to recover.
Also consuming cash will be more expensive oil. Crude prices bubbled to a six-week high on Thursday after the Organisation of Petroleum Exporting Countries agreed on Wednesday to cut output for the first time since 2008.
ASIAN TIGERS PURRING
There were stronger PMIs in China, Taiwan and Vietnam, and while activity in Japan’s factories was still growing in November, the pace was slower. However, an uncertain outlook for global trade is worrying for Asia’s export-driven economies.
“We are still waiting very much to see what the Trump presidency will mean for things like trade policies and trade restrictions,” Louis Kuijs, head of Asia economics at Oxford Economics, said.
Trump has declared his intention to withdraw from an Asia-Pacific free trade agreement once he is inaugurated on Jan. 20, and his protectionist comments while campaigning for the presidency could herald problems for Asia.
China’s official PMI rose to 51.7 in November from 51.2. The index was stronger than economists polled by Reuters had expected and matched a level last seen in July 2014.
But analysts noted a worrying lack of expansion in new export orders for Chinese factories, suggesting the stronger headline number was a consequence of demand coming from its frothy property sector, which authorities are trying to cool.
The unofficial Caixin survey showed a more modest increase in activity, perhaps because it focuses on smaller firms which benefit less from government support for the economy.
While growth in activity was slower in Japan, a sub-index for new orders, which measures both domestic and external demand, rose to a 10-month high.
Elsewhere in Asia, the pace of growth in India’s factory activity slowed, resulting in the biggest month-on-month decline in its PMI since March 2013.
Analysts said the slowdown was probably due to a slump in demand after Prime Minister Narendra Modi ordered 500 and 1,000 rupee banknotes to be removed from circulation.
South Korean factories showed a fourth consecutive month of slowdown underlying a fragile recovery for Asia’s fourth-biggest economy.
In Malaysia, where the ringgit currency has fallen sharply due to capital outflows, the PMI fell to a five month low, hurt by falls in production and new orders.
And in Australia, lower business investment has opened the possibility that the economy shrank last quarter for the first time in almost six years.
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