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By Jonathan Cable and Leika Kihara
LONDON / TOKYO (Reuters) – Manufacturers across Europe ended 2020 on a high level, while Asian factory activity increased moderately thanks to robust demand in regional giant China. However, polls showed that the prospect of tougher coronavirus containments clouded prospects for recovery.
Despite hopes that the introduction of vaccination programs will ultimately quell the virus, a recurrence of infections will force many countries to renew tight controls on economic activity, potentially damaging large exporters like China and Germany.
"The global manufacturing industry was still on the move until mid-December, which is a very good basis for economic recovery as soon as the current wave of the pandemic subsides," said Holger Schmieding in Berenberg.
"We may have had a slight setback in January as new lockdowns hit manufacturing. However, with China remaining pretty strong and the US showing no significant signs of consumer slowdown, the outlook for manufacturing is permanent still good."
Eurozone manufacturing activity grew the fastest since mid-2018 last month, suggesting that the bloc's economy was less affected by the pandemic than it was at the beginning of the year.
IHS Markit's final Eurozone manufacturing purchasing managers' index (PMI) rose to 55.2 from 53.8 in November, despite being below the original 55.5 "Flash" estimate.
Anything over 50 indicates growth, and December was its highest since May 2018. An index that measures production and feeds into a compound PMI due Wednesday, considered a good guide to economic health, rose from 55 .3 to 56.3.
Germany was once again the driving force behind the bloc, and in contrast to the dominant service industry, which was particularly hard hit by lockdown measures to combat the coronavirus, most of the factories in the region have remained open.
The UK PMI rebounded to a three-year high of 57.5, but that spike was likely in large part due to factories quickly processing orders en route to leaving the European Union ahead of the UK's transition period. (GB / PMIM)
Prime Minister Boris Johnson signed an 11th hour treaty with the EU on December 24th and averted tariffs on trade in goods with the EU. However, trade between the two economic areas will still have to face considerable additional formalities.
World exchanges hit record highs on Monday, the first trading day of the new year, as investors hoped that vaccine rollouts would ultimately boost a global economy decimated by the COVID-19 pandemic. (MKTS / GLOB)
"A potentially rapid recovery in services and the continued strength of the manufacturing sector mean that spring is coming when hopefully the pandemic subsides and we are heading for a sharp increase in GDP," said Schmieding von Berenberg.
ASIAN STRAIN
According to PMI surveys, manufacturing activity has expanded in Japan, South Korea and Taiwan. The youngest manufacturers of indications in Asia continue to recover from the damage caused by the COVID-19 pandemic last year.
A slowdown in the growth of factory activities in China highlighted the challenges. China's Caixin / Markit PMI fell to 53.0 in December – its lowest level in three months – but remained well above the 50 level.
"External demand has likely been affected by the continued global spread of COVID-19 and the reimplementation of lockdowns," HSBC's Chinese economist Erin Xin said in a research note.
The value, which was below the value of 54.9 in November, roughly corresponded to the official measure for factory activity, with activity moderating at a high level.
Elsewhere, production stabilized in Japan for the first time in two years, while the Indian factory sector ended 2020 stronger as manufacturers cranked up production to meet rising demand.
