Global Manufacturing Holds Up in October as China’s Official Index Contracts to 49.3

Key Facts

Global manufacturing activity remained resilient in October, but factories began to face pressure from higher energy costs and supply chain disruptions that squeezed margins, according to a Reuters report published via MarketScreener. Asian factory activity continued to expand, although growth slowed in China, Japan, South Korea and Taiwan. In Europe, the euro zone’s final manufacturing index stood at 52.7 points in October, down from 52.9 in September but above the preliminary estimate of 52.4. In China, the RatingDog survey showed an expansionary reading of 52.0 points, while the official index returned to contraction at 49.3. The two Chinese readings show a mixed picture from separate surveys, while regional indicators point to activity holding up despite rising production and supply costs.

The euro zone index remained above 50.0 points, the threshold between activity growth and contraction, despite falling from September. September’s level was the highest since May 2022, Reuters reported, putting October’s reading in the context of a slowdown after a strong improvement. The final reading also came in above the preliminary estimate of 52.4, an upward revision to the estimated level of activity. In the region’s two largest economies, German manufacturing expanded strongly in October, while the French sector returned to contraction. This divergence coincided with euro zone factory input prices rising at their fastest pace since May and producer prices accelerating, adding pressure to companies’ costs and selling prices.

In China, the RatingDog manufacturing index registered 52.0 points in October, slightly down from 52.1 in September, and remained above the growth threshold. But China’s official index fell to 49.3 points from 50.1 in September, indicating a contraction in activity in the official survey. The new export orders index in the same survey also fell to 48.7 points from 50.0, signaling weaker external demand, according to data reported by the Associated Press. The readings differ because they come from separate surveys, and the RatingDog reading does not negate the decline recorded in the official index. Weak export orders add to the backdrop of an Asian slowdown identified in Reuters’ October report.

In Japan, the manufacturing index fell to 53.3 points in October from 54.1 in September, marking the slowest expansion in seven months. Still, output rose for a tenth consecutive month, supported by increased demand for semiconductors, while growth in new orders recorded its slowest pace in seven months. In South Korea, factory activity growth slowed to its weakest pace in eight months as output and demand weakened; the index fell to 51.3 points from 53.9 in September. Taiwan’s manufacturing index continued to show strong activity growth, but at a slower pace than in the previous month. The readings highlight that chip-related demand continues to support some production lines, but has not prevented growth indicators from slowing in several Asian economies.

The Reuters report attributed broader pressures to the continuing conflict in the Middle East, as rising fuel and food prices weigh on consumption and business confidence. Toru Nishihama of the Dai-ichi Life Research Institute said, "Intensifying price competition from China is also putting pressure on competing exporters such as Japan and South Korea." These pressures combine rising energy costs with price competition for exporters, at a time when production and demand growth are slowing in some markets. The International Monetary Fund forecast that Asia’s growth would slow in the following year, warning of risks from an energy shock linked to the Iran war and a possible correction in the AI boom. This adds to the risks facing Asian factories, as some production continues to rely on semiconductor demand.

In the euro zone, accelerating input prices added pressure on the European Central Bank to raise interest rates again, according to Reuters, while economists surveyed by the agency expected a rate hike in December. Preliminary data on the region’s October inflation were due on Wednesday, with a Reuters poll expecting it to reach 4.0%. The upcoming inflation reading will give policymakers another indicator of the price trajectory alongside rising factory costs. This comes as the European manufacturing index remains above the growth threshold, while performance in Germany and France reflects a clear divergence within the region. The December decision remains a key event for markets in light of economists’ expectations and the return of price pressures.