Tariff fears cloud global factory outlook despite bright spots in Asia and Europe

Reuters

Concerns over new U.S. tariffs under President Donald Trump are weighing on global manufacturing, though June data show signs of resilience in countries like Japan, China, and Ireland.

The global manufacturing sector is showing mixed signals as worries about sweeping U.S. tariffs cloud the outlook across Asia, Europe, and North America. While some economies posted growth in June, analysts say ongoing uncertainty is pressuring investment and supply chains.

Japan’s manufacturing sector grew for the first time in over a year, with the PMI edging up to 50.1, boosted by output despite falling new orders. China’s Caixin/S&P Global index also surprised on the upside, rising to 50.4, countering official figures that had shown continued contraction.

South Korea’s factory activity shrank for a fifth month, though the pace of decline eased following a snap presidential election. India was a regional outlier, with manufacturing hitting a 14-month high due to surging export demand and record hiring.

In Europe, factory performance was uneven. Ireland posted the strongest PMI reading at 53.7 — a 37-month high — while Spain and the Netherlands also stayed above 50. But Germany, France, and Italy continued to contract, with Britain's factory slump only showing tentative signs of bottoming out.

The euro zone’s overall PMI inched up to 49.5, its highest since August 2022 but still below the 50 threshold that signals growth. Analysts noted that while domestic activity was supporting some economies, the global trade environment remains volatile.

“We’re in a sweet spot, but it may not last,” said John Fahey, senior economist at AIB, commenting on Ireland’s performance.

In the U.S., the manufacturing sector contracted for a fourth consecutive month. The ISM index rose slightly to 49.0, but new orders declined for the fifth month, employment weakened, and input prices rose.

Negotiators from U.S. trading partners are racing to finalise trade deals before a July 9 deadline, when import tariffs could jump. Japan and South Korea have struggled to secure exemptions, while the EU begins a new round of talks in Washington this week.

At a central banking summit in Sintra, Portugal, ECB President Christine Lagarde warned that the post-pandemic world is “more uncertain” and inflation more volatile, though euro zone inflation held steady at the ECB's 2% target last month.

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