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Industryweek 11594 080116 Brexit Mini Plant Wpapool
Industryweek 11594 080116 Brexit Mini Plant Wpapool
Industryweek 11594 080116 Brexit Mini Plant Wpapool
Industryweek 11594 080116 Brexit Mini Plant Wpapool
Industryweek 11594 080116 Brexit Mini Plant Wpapool

GLOBAL ROUNDUP: Brexit Hits UK Factories Harder Than Estimated

Aug. 1, 2016
Manufacturing slumps and contracts in July in the U.K. (48.2 PMI), Russia (49.5) and China (49.9), though for different reasons.

U.K. manufacturing shrank more than initially forecast in July, suffering its biggest drop in more than three years. The PMI slumped to 48.2, below the one-off flash reading of 49.1, according to Markit Economics. The index has only fallen below the 50 mark — which separates expansion from contraction — one other time since early 2013, and was at 52.4 in June.

The report suggests that Britain’s decision to leave the European Union could have a harsher effect on the economy than initially expected. Markit’s flash estimates published last month had already signaled that business activity was shrinking at its fastest pace since the last recession seven years ago. That prompted Bank of England official Martin Weale to change tack and back his colleagues’ call for stimulus this week.

BOE policy makers kept the benchmark rate at a record-low 0.5% in July and signaled that loosening was likely in August. The nine-member Monetary Policy Committee announces its next decision on Thursday, when it will also publish new forecasts for growth and inflation.

“The weak numbers provide powerful arguments for swift policy action,” said Rob Dobson, an economist at Markit. “The downturn was felt across industry, with output scaled back across firms of all sizes and across the consumer, intermediate and investment goods sectors.”

The decline in production was the steepest since October 2012, Markit said. New orders also contracted, suggesting uncertainty in the domestic market offset any boost to exports from the weaker pound.

While manufacturing exports were the only bright spot in the initial report, Markit said that the improvement was “less marked than previously estimated” due to sluggish overseas demand. The drop in the currency pushed input-cost inflation to a five-year high.

By Jill Ward with assistance from Thomas Seal, Bloomberg

Chinese Manufacturing Also Contracts in July

China’s manufacturing shrank in July, the government said Monday, blaming the deterioration on rainstorms that wreaked havoc across large swathes of the country. It was the first time since February that the official PMI showed contraction, and according to a Bloomberg News survey it missed economists’ expectations that it would flatline.

The official PMI came in at 49.9 for July, down from 50.0 the month before and underlining problems in the world’s second-largest economy. The National Bureau of Statistics attributed the slowdown to summer downpours, which hit the industry-heavy middle and lower reaches of the Yangtze River particularly hard.

“Production and transportation of relevant areas were massively impacted,” said NBS analyst Zhao Qinghe, adding that slowing expansion and overcapacity also dragged.

The key manufacturing sector has been struggling for months in the face of sagging global demand for Chinese products and excess industrial capacity left over from the country’s infrastructure boom. ANZ economists said July’s figures “do not bode well” for China’s economic growth in the second half of the year.

“The traditional manufacturing sector is likely to continue to face strong headwinds as efforts to reduce overcapacity continue,” they said in a report.

Unusually, the private Caixin Purchasing Managers’ Index, which focuses on small companies, was more positive than the official figure. Its reading jumped to 50.6 in July from 48.6 in June — the first expansion since February 2015 — the Chinese financial magazine said in a joint statement with data compiler IHS Markit.

Copyright Agence France-Presse, 2016

Russian Manufacturing Unexpectedly Contracts, Too, as Orders Decline

The Russian PMI fell to 49.5 from a 19-month high of 51.5 in June, according to a statement released by Markit Economics on Monday. That was the worst showing since April and below every forecast in a Bloomberg survey of five economists, whose median estimate was 51.

“Deteriorating demand conditions continued to weigh on the economic performance of Russian manufacturers,” Samuel Agass, an economist at Markit, said in the statement. “This contraction led to an easing of production growth and job cuts across the sector.”

A slowdown in manufacturing is the latest hurdle for the economy of the world’s biggest energy exporter as it struggles to shake off its longest recession in two decades. Three months of gains in industrial production helped offset the continuing distress among consumers in the second quarter, when gross domestic product lost 0.6% from a year earlier, the smallest drop since the contraction began at the start of 2015.

The Micex Manufacturing Index has risen 1.2% this year, underperforming the broader Micex Index, which is up more than 11%. The ruble is the second-worst performer among its emerging-market peers in the past month with a 3.3% loss against the dollar.

By Ott Ummelas with assistance from Zoya Shilova, Bloomberg

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