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Europe and Asia's factories end 2024 on weak footing as Trump 2.0 risks mount

European manufacturing activity fell sharply in December

Factory activity in Asia and Europe ended 2024 on a soft note as expectations for the new year soured amid growing trade risks from a second Donald Trump presidency and China’s fragile economic recovery.

A manufacturing slowdown in the euro zone intensified last month, with scant signs of a rebound anytime soon as the bloc’s three largest economies — Germany, France and Italy — remained stuck in an industrial recession.

Manufacturing purchasing managers’ indexes for December from across Asia published on Thursday showed factory activity slowing in China and South Korea although there were some signs of a pickup in Taiwan and Southeast Asia.

US President-elect Trump has pledged to impose tariffs across the board, with bigger barriers on imports from three major trading partners — Mexico, Canada and China.

The Caixin/S&P Global manufacturing PMI for China nudged down to 50.5 in December from 51.5 the previous month, undershooting analysts’ forecasts and indicating activity grew only modestly.

Gabriel Ng, assistant economist at Capital Economics, said Beijing’s increased policy support in late 2024 provided a near-term boost to growth, which is likely to be seen in other fourth quarter indicators.

“And this improvement should carry over into early 2025,” Ng said. “But the boost probably won’t last more than a few quarters, with Trump likely to follow through on his tariff threat before long and persistent structural imbalances still weighing on the economy.”

In Europe, HCOB’s euro zone manufacturing Purchasing Managers’ Index, compiled by S&P Global, dipped to 45.1 in December, just under a preliminary estimate and further below the 50 mark separating growth from contraction, where it has been since mid-2022.

“Output in the euro zone remained under pressure at the end of 2024, held back by a continued slide in new orders in both the domestic market and in exports,” noted Claus Vistesen, chief euro zone economist at Pantheon.

Factory activity in Germany fell deeper into contraction territory last month on sharper declines in output and new orders while activity in France declined at the fastest pace in more than four years.

In Britain, outside the European Union, factory activity shrank at the quickest rate in 11 months and firms reduced staffing levels due to higher taxes and weak foreign demand.

Elsewhere in Asia, South Korea’s PMI showed activity shrinking in December and the decline in output gathering pace, a stark contrast to better-than-forecast export growth figures released on Wednesday.

South Korea’s central bank governor said on Thursday the pace of monetary policy easing would need to be flexible this year due to heightened political and economic uncertainty.

In addition, South Korea is dealing with the hit to business confidence from a national political crisis after a failed bid by President Yoon Suk Yeol last month to impose martial law.

Earlier in the week, Japan’s PMI showed activity shrinking in December, albeit at a slower pace. Malaysia and Vietnam also reported declines in factory activity.

India’s manufacturing activity grew at its weakest pace for 2024, its PMI showed, although the South Asian economy’s factories continued to outperform regional peers, reporting uninterrupted expansion for the past three-and-a-half years.