Manufacturers across Europe and Asia saw a weak performance last month as factories grappled with tepid demand, surveys showed on Thursday, raising the risk of an underpowered global economic recovery, with the U.K. being among rare markets witnessing an optimistic outlook.
The output in Türkiye meanwhile also fell in July, according to the index data published by the Istanbul Chamber of Industry (ISO).
The data revealed it was a broad-based downturn in the eurozone during the month while a slump in China's manufacturing activity suppressed its Asian neighbors. British factories bucked the trend and recorded their best month for two years, with output and hiring rising.
The eurozone, already plagued by weak growth saw its manufacturing sector continue to contract on steep reduction in orders and output in July, final data from S&P Global showed.
The HCOB manufacturing purchasing managers' index (PMI) posted 45.8 in July, unchanged from June and above the flash estimate of 45.6.
It has been below the 50 mark separating growth from contraction for over two years.
An index measuring output, which feeds into a composite PMI due on Monday that is seen as a good gauge of economic health, dropped to a seven-month low of 45.6.
"The turn in the manufacturing inventory cycle has yet to materialize in a context of weak global demand, leaving the eurozone short of a clear growth driver as services are slowing," said Leo Barincou at Oxford Economics.
"Persistently weak industrial surveys pose a major downside risk to our forecast of an industrial pick-up in the second half of the year."
The downturn in Germany's manufacturing sector, which accounts for about a fifth of Europe's biggest economy, accelerated while in France the industry contracted at its fastest rate in six months.
"The widely held belief that the eurozone's recovery would pick up speed in the second half of the year is taking a hit, thanks to the latest HCOB PMI index for the manufacturing sector," Hamburg Commercial Bank chief economist Cyrus de la Rubia said.
Earlier this year, the sector was expected to climb out of the production slump, but the doubts that surfaced in June have been intensified by an accelerated decline in production in July, de la Rubia noted.
"Given this weak data, we'll probably need to lower our GDP growth forecast for the year from 0.8%," the economist added.
In Britain, however, the index rose to 52.1, its highest reading since July 2022, as optimism builds after Prime Minister Keir Starmer's landslide election victory. The Bank of England (BoE) looks in a position to cut interest rates later on Thursday after holding them at a 16-year high of 5.25% for the past year.
Asian strain
Manufacturing activity shrank in Japan and expanded at a slower pace in South Korea due partly to soft domestic demand and rising input costs, adding to the gloom from a contraction in China's factory activity.
China's Caixin/S&P Global manufacturing PMI sank to 49.8 in July from 51.8 the previous month, the lowest reading since October last year and missing analysts' forecasts of 51.5.
The reading, which mostly covers smaller, export-oriented firms, was in line with an official PMI survey on Wednesday showing manufacturing activity slipped to a five-month low.
"Looking ahead, we expect a period of below-trend global growth to weigh on manufacturing activity across Asia for the rest of this year," said Shivaan Tandon, markets economist at Capital Economics.
Japan's final au Jibun Bank Japan manufacturing PMI fell to 49.1 in July from 50.0.
Moving in the opposite direction to most other central banks, the Bank of Japan (BOJ) raised interest rates to levels unseen in 15 years on Wednesday and unveiled a detailed plan to slow its massive bond buying.
South Korea, another key regional export engine, fared better with the PMI standing at 51.4 in July, above the 50-mark for a third month but slowing from June's 26-month high of 52.0.
Elsewhere, factory activity expanded in Taiwan but also slowed slightly from June while India's manufacturing activity expanded at a solid pace thanks to continued robust demand.
The headline PMI in Türkiye which was recorded at 47.9 in June, fell to 47.2 in July, falling below the threshold for the fifth month in a row.
While the index points to a significant slowdown in the sector's operating conditions, this slowdown has been registered at the same rate as in November 2023 and marked the sharpest decline in new orders in the last 20 months, ISO said.