2013 Manufacturing Trends: Europe Loses to Developing Economies

manufacturingThe Markit Eurozone Manufacturing PMI report released on Wednesday shows that the recession-stricken region will end the year with a PMI of 46.1 after a 0.1 point drop from November.

Strength or weakness in the manufacturing sector is widely viewed as a barometer for overall economic health. With a reading below 50 in every country except Ireland, which posted a PMI of 51.4, European manufacturing contraction is expected to continue into the first quarter of 2013, reflecting general weakness in the region’s economy.

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On a more positive foot, the rate of decline in the last quarter of 2012 was the slowest of the year. Chris Williamson, chief economist at Markit, commented: “Manufacturers look to be in for another tough year in 2013, though prospects have brightened a little, as producers should benefit from signs of stronger demand in key export markets such as the US and China. Improving competitiveness remains the key to success, however, and Ireland perhaps provides a reassuring example to other countries of how exports can rise on the back of structural reforms.”

Europe has been suffering a number of well-documented economic maladies. The Organisation for Economic Co-Operation and Development reported that euro-area GDP contracted 0.4 percent in 2012, and is expected to contract 0.1 percent in 2013 before recovering 1.3 percent in 2014.

However, manufacturing data coming out of developing economies tells a different story. India’s PMI hit a six-month high in December of 54.7. The country’s index has remained above 50 for nearly four years. Brazil’s manufacturing index fell 1.1 percentage points in December, but the sector is still growing with a PMI of 51.1. Brazil’s economy, the largest in Latin America, is expected to expand only 1 percent in 2013. This indicates that most of the global manufacturing growth in 2013 may come from Asia.

China’s PMI, which averaged just 49.1 for the past 12 months, grew to 51.5 in December and is expected to grow alongside GDP. Chinese GDP growth was relatively slow in 2012, at 7.5 percent, which is reflected in its low PMI for the year. But fueled by expected GDP growth of 8.5 percent, China’s strong December PMI puts the country on track to remain a manufacturing leader in 2013.

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