Eurozone manufacturing output closed out its best quarter since early ’22 last month. This was as U.S. factory activity grew for a 6th straight month; besides an AI boom-powered Asian producers, business surveys reflected on Wednesday, 1 July. The situation was offering some relief from the U.S.-Israeli war with Iran.
Cost pressures dipped, but they remained elevated as supply shortages besides shipping delays lengthened lead times. It suggested that the energy shock tied to the Middle East conflict may intensify.
S&P Global noted that most survey responses were collected before the signing of a memorandum of understanding (MoU) for a ceasefire between the U.S. & Iran on Wednesday, 17 June ’26. This means that the full impact on supply chains, in addition to energy costs, has not yet been reflected in the PMI data.
Inflation in the common currency area was less than expected during the last month. The inflation rate came in at 2.8%, which is still much above the European Central Bank’s 2.0% target, according to official data.
Ralph Solveen at Commerzbank said that the inflation rate in the euro zone fell noticeably in June. The main reason for this decline is that crude oil prices fell significantly over the past month due to the partial reopening of the Strait of Hormuz.
On Thursday, 11 June, the ECB increased interest rates as a war-related energy cost surge had pushed inflation over 3%. That’s well in excess of its 2% target.
The S&P Global Eurozone Manufacturing PMI (EUPMI=ECI) slipped to a 4-month low of 51.4 during June, down 0.2% from May’s 51.6, although it remained above the 50.0 threshold. This separated growth from contraction for the fifth consecutive month. The reading was merely above a preliminary estimate of 51.3.
German factory activity expanded modestly while France’s grew slightly faster than initially forecast. In Britain, manufacturing cooled despite a boost to output from stockpiling ahead of price hikes.
In the U.S., activity slowed in June after surging during the previous month. The slowdown was likely due to some fading of the lift from businesses front-loading orders in avoiding shortages as well as higher prices caused by the Middle East conflict.
The Institute of Supply Management disclosed that its manufacturing PMI slipped by 0.7 to 53.3 last month from 54.0 in May. This was the highest reading in the past four years, surpassing the 54.0 recorded in May 2022. A reading above 50 indicates expansion in manufacturing. That accounts for 9.4% of the economy. Economists polled by Reuters had predicted the PMI unchanged at 54.0.
Nonetheless, U.S. manufacturing has since grown for 6 consecutive months. It’s the longest unbroken run of growth in nearly four years. It was also supported by the AI investment boom. This trend has helped to blunt the hit on factories due to the Iran war.
Inorganic Support
For now, surveys underscore how the global AI investment wave is reshaping Asia’s economic fortunes. There’s a booming demand for chips and data centre equipment, besides other technological goods. They provide a powerful engine for growth as well as act as a critical buffer against mounting geopolitical besides trade risks.
China and Japan, besides South Korea, witnessed factory activity expand during June, depicting a solid demand for chips and computers as well as other AI-related products. This trend was in addition to stockpiling by enterprises seeking to guard against shortages besides price increases resulting from the Middle East conflict.
RatingDog General reported that China’s PMI hit 51.7 during June. This reflects an expansion for the seventh straight month. It eased from May’s 51.8 but exceeded analysts’ prediction of 51.0. 6.
The finding aligned with an official survey on Tuesday, 30 June. It reflected factory activity returning to expansion last month due to robust export orders.
Japan’s PMI rose to 54.8 in June from 54.5 the month before in May. It expanded for a sixth consecutive month, with new orders growing at their fastest pace in more than 2 years.
However, input cost inflation remained at a nearly 4-year high. That’s a sign of mounting price pressures that may crimp corporate margins besides leading to broad-based inflation.
