Manufacturing growth caps strong Q1, led by China

Factories across Europe and much of Asia posted another month of solid growth in March, rounding off a strong quarter for manufacturers, even though exporters fear a rise in U.S. protectionism could snuff out a global trade recovery.

China led the way, with an official manufacturing index expanding at the fastest pace in nearly five years. Surveys on Monday also showed encouraging growth in Europe, Japan, India and much of emerging Asia.

In the euro zone, IHS Markit’s final manufacturing Purchasing Managers’ Index rose to its highly in nearly six-year high of 56.2 in March, far above the 50 mark that separates growth from contraction.

However, British manufacturers lost some momentum last month, as export orders grew more slowly and rising inflation cut into consumer demand.

Sterling’s tumble following June’s vote to leave the European Union helped manufacturers enjoy their fastest annual growth in three years during the final quarter of 2016 but the sector’s PMI suggested growth slowed in the first three months of this year.

“Greater optimism about global growth prospects appears to be providing a boost, while the fall in the value of the pound post-Brexit is helping new orders,” James Smith at ING said of the British PMI.

“Whilst the near-term outlook for manufacturing looks encouraging, it’s possible that Brexit uncertainty will start to weigh more heavily on sentiment over coming months.”

The official Chinese PMI on Friday rose to 51.8 in March from 51.6, thanks to a months-long construction boom which is helping to boost resources prices around the world.

That was the strongest reading since April 2012, though a private survey focusing on smaller companies suggested a more cautious outlook, raising questions about whether the export recovery can be sustained.

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Julian Evans-Pritchard, an economist at Capital Economics, said the strength in China won’t last – measures to cool its overheated property market and tighter central bank policy is likely to curb investment and industrial activity in coming quarters.

But the biggest risk for China may be brewing halfway across the world. U.S. President Donald Trump is due to hold his first meeting with his Chinese counterpart, Xi Jinping, in Florida later this week and those talks may be tense.

Reuters

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