Tariff risks muddy global outlook for factories

LONDON/TOKYO, July 1 — Worries over future United States (US) tariffs are clouding the outlook for factories across much of Asia and Europe, according to surveys released on Tuesday, which nonetheless showed some were able to shrug off the uncertainty and keep growing.

Among the bright spots, Japan’s manufacturing read-out showed growth for the first time in 13 months, South Korea’s activity contracted at a milder pace, and China’s Caixin PMI index also expanded in June, confounding an official survey that showed activity shrinking for a third straight month.

In Europe, Ireland, Spain, and the Netherlands were among the star performers, even as the wider euro zone’s readout was broadly flat and the United Kingdom (UK) continued to contract, albeit more slowly.

Analysts said the underlying softness in surveys highlights the challenges facing businesses and policymakers as they try to navigate US President Donald Trump’s moves to shake up the global trade order with sweeping tariffs.

“We must recognise that the external environment remains severe and complex, with increasing uncertainties,” said Caixin Insight Group Caixin Insight Group Wang Zhe.

The Caixin/S&P Global survey showed Chinese manufacturing PMI rose to 50.4, surpassing expectations in a Reuters poll.

Japan’s final au Jibun Bank PMI rose to 50.1 due to an upswing in output; however, overall demand remained weak as new orders shrank amid concerns over US tariffs.

Factory activity in South Korea contracted for the fifth consecutive month, although the pace of decline eased following relief over a snap presidential election on June 3, which ended six months of uncertainty.

In manufacturing, India was a significant outlier in the region last month, as activity accelerated to a 14-month high, driven by a substantial rise in international sales that helped spark a record-breaking spurt in hiring.

Negotiators from major US trading partners are rushing to reach deals with the Trump administration by a July 9 deadline to avoid import tariffs increasing to higher levels.

While China continues its negotiations for a broader trade deal with the US, Japan, and South Korea have so far failed to win concessions on the tariffs imposed on their mainstay export items, such as automobiles. The 27-member European Union is set to embark on new talks in Washington later this week.

The eurozone HCOB manufacturing Purchasing Managers’ Index, compiled by S&P Global, edged up to 49.5 in June from 49.4 in May, its highest level since August 2022 — but it remains below the 50 mark denoting growth in activity.

Moreover, national surveys revealed stark differences across the currency bloc. Ireland recorded the highest PMI at a 37-month peak of 53.7, while Greece, Spain, and the Netherlands also posted readings above 50.

“We seem to be in a sweet spot at the moment where it is domestic activity that is driving the index.

“There may be some level of activity and investment that was postponed for two or three years, and you are just at the point now where that has to happen, even though there is a more uncertain global backdrop,” said AIB senior economist John Fahey of the Irish read-out.

While Germany’s manufacturing PMI reached its highest in nearly three years, it still indicated contraction. On the other hand, France, Italy and Austria registered faster declines in manufacturing conditions.

In the UK, outside the European Union, the manufacturing sector showed some signs of turning a corner in its long slump.

“That said, any hoped-for stabilisation remains fragile and subject to potential headwinds that could severely impact demand, supply chain reliability, and future growth prospects,” said &P Global Market Intelligence director Rob Dobson.

Speaking at the start of a central bankers’ annual get-together in Sintra, Portugal, the European Central Bank’s President Christine Lagarde said the global environment had changed fundamentally since the inflation spurt of the pandemic years.

“The world ahead is more uncertain — and that uncertainty is likely to make inflation more volatile,” she said.

Data on Tuesday showed euro zone inflation last month stood at the ECB’s two per cent target, confirming that the era of runaway prices is over.

— Reuters