Global Manufacturing Activity Remains Pressured by US Tariffs

Forex News

Concerns about global trade war continue to impact factory growth across the world. According to economists, global economic activity remains solid, but it has already passed its peak. Analysts estimate an 81-basis-point impact on global growth in a scenario of 25% tariff hikes across all imports from China and Europe, with US growth slowing by 1 percentage point and China's by 1.5 points.

IHS Markit's July final Eurozone manufacturing PMI rose to 55.1 from June's 18-month low of 54.9, unchanged from an initial reading and still comfortably above the 50 level that separates growth from contraction. Meanwhile, British factories lost momentum and manufacturers were their most downbeat in nearly two years, likely raising fresh questions about the actual need for a Bank of England interest rate hike on Thursday. China's Caixin/Markit Manufacturing PMI fell to 50.8 from June's 51.0.

But slowing growth, wilting confidence, and trade war fears are not likely to deter major central banks moving away from their ultra-loose monetary policies put in place during the last financial crisis. Growth is still resilient, unemployment rates are low, inflation and wages are rising - that's the bigger picture and so central banks have to keep tightening in the face of that.

Last week, the European Central Bank reaffirmed plans to end its 2.6 trillion-euro stimulus program this year and the Bank of England is widely expected to raise borrowing costs on Thursday. On Tuesday, the Bank of Japan pledged to keep its massive stimulus in place but made tweaks to reduce the adverse effects of its policies on markets and commercial banks as inflation remains stubbornly out of reach.

Meanwhile, the US growth is expected to cool slightly, but remain strong enough for the Federal Reserve to stay on track for two rate hikes this year, even if it is likely to hold rates steady this week.