Global manufacturing expanded at the fastest pace in years last month and the second-best in two decades in the euro zone, driven by robust demand and bolstering the case for central banks to shift to tighter monetary policy.
A raft of mostly strong factory activity surveys released on Friday comes after the European Central Bank announced in October it would cut monthly bond purchases starting in January. The US Federal Reserve is expected to raise rates again this month and the Bank of England raised them in November.
On Thursday, the Bank of Korea became Asia’s first major central bank to raise interest rates in three years, a potential turning point for the region. Malaysia and the Philippines are among those that may raise rates next year.
“Almost across the board, the PMIs were pretty good. The strength of the economies is going to give them (central banks) sufficient confidence to go ahead with their planned policy tightening,” said Andrew Kenningham, chief global economist at Capital Economics.
Euro zone factories had their busiest month for over 17 years in November. Forward-looking indicators suggest the momentum will continue to the end of 2017, capping off what is expected to be the best year for euro zone economic growth in a decade [EUR/PMIM].
HIS Markit’s final manufacturing Purchasing Managers’ Index for the bloc climbed to 60.1 last month from October’s 58.5. That was the second-highest in the survey’s 20-year history. Anything above 50 indicates growth.
Meanwhile, British factories enjoyed their best month in more than four years in November, suggesting manufacturing will boost the country’s sluggish economy going into 2018 [GB/PMIM].
It added to signs manufacturing could be a bright spot next year, when the overall economy is likely to slow further as Britain approaches its departure from the European Union in March 2019.
“The manufacturing sector is a clear bright spot in the UK economy at the moment. But the larger service sector is still flagging and is why we don’t expect a sharp pick-up in growth next year,” said James Smith, an economist at ING.
Signs of progress in Britain’s negotiations to leave the EU mean chances of a disorderly Brexit declined in the past month, a Reuters poll found, but growth will lag its peers next year. [ECILT/GB]
A US manufacturing survey later on Friday is expected to show faster growth.