Global Factory Revival in Doubt as Coronavirus Spreads - The Wall Street Journal

Shoppers wear protective face masks at a convenience store in Hong Kong on Monday. Photo: Vincent Yu/Associated Press

Paul Hannon

The Wall Street Journal

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Updated Feb. 3, 2020 5:52 am ET

Global manufacturing activity appeared to be steadying after a long slowdown, but is set to suffer a fresh setback due to China’s isolation in response to the coronavirus outbreak.

January surveys of factories in Asia and Europe showed a slower decline in output, with shrinking inventories and stabilizing new orders pointing to a rebound in activity over coming months. A similar reading for U.S. manufacturing activity is expected to reinforce that message Monday.

But those surveys were largely completed before uncertainty over the virus disrupted world-wide trade and supply chains. China is the world’s largest manufacturing economy, and factories around the globe rely on its products to make their own, and produce goods that are used in Chinese production.

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Surveys of purchasing managers at European factories continued to point to weakness in output. But they also showed a more modest drop in new orders in January, while businesses had run down their stocks of finished products. According to the compiler of the surveys—data firm IHS Markit—that combination pointed to a pickup in the sector over coming months.

“Eurozone manufacturing started 2020 with green shoots of recovery in sight,” said Chris Williamson, IHS Markit’s chief business economist. “The new orders-to-inventory ratio, a key forward-looking indicator for factory production, surged to its highest for nearly one-and-a-half years.”

There were signs of an imminent revival across much of Asia, particularly in Taiwan and India. In the former, the Purchasing Managers Index for manufacturing reached a 17-month high as export orders rose for the first time since August 2018. In India, the PMI surged to its highest level in almost eight years, also aided by rising export orders.

Despite some encouraging developments, manufacturing remained under pressure as the coronavirus began to spread. The PMIs for Germany and Japan—the world’s third and fourth largest manufacturing economies—recorded continued contractions in January.