Global Manufacturing Shows Resilience as AI Demand Cushions Asia While Europe Navigates Energy Shock,...

Manufacturing activity across major economies demonstrated notable resilience last month, with Europe recording its strongest quarter since early 2022 and Asian producers receiving a significant lift from the ongoing artificial intelligence investment boom, according to business surveys released on Wednesday.

The data offered some reassurance amid the lingering effects of the U.S.-Israeli conflict with Iran, though persistent cost pressures and supply chain strains highlighted the challenges still facing industrial sectors worldwide. While energy costs tied to the Middle East disruptions have eased somewhat, analysts caution that the full impact on global supply chains may not yet be fully reflected in the latest figures.

S&P Global noted that most survey responses were collected before the signing of a memorandum of understanding for a ceasefire between the U.S. and Iran on June 17, meaning the complete effects on supply chains and energy prices are still working their way through the system.

Inflation in the euro zone came in lower than expected at 2.8% last month, though it remained well above the European Central Bank's 2.0% target, according to official data.

"The inflation rate in the euro zone fell noticeably in June," said Ralph Solveen at Commerzbank. "A key reason is that oil prices fell significantly over the past month due to the partial reopening of the Strait of Hormuz."

The ECB had raised interest rates on June 11 in response to a war-related energy cost surge that had pushed inflation above 3%. The S&P Global Eurozone Manufacturing PMI slipped to a four-month low of 51.4 in June from 51.6 in May, but remained above the 50.0 threshold separating growth from contraction for a fifth consecutive month. The reading was slightly above a preliminary estimate of 51.3. German factory activity expanded modestly, while France's grew slightly faster than initially forecast. In Britain, manufacturing cooled despite a boost to output from stockpiling ahead of anticipated price increases.

AI Boom Provides Critical Support for Asian Producers

The surveys underscored how the global AI investment wave is reshaping economic fortunes across Asia. Strong demand for chips, data-center equipment, and other technology goods has provided a powerful engine for growth, acting as a buffer against mounting geopolitical and trade risks.

China, Japan, and South Korea all saw factory activity expand in June on solid demand for chips, computers, and other AI-related products, along with stockpiling by firms seeking to guard against shortages and price rises linked to the Middle East conflict.

RatingDog's General Manufacturing China PMI hit 51.7 in June, marking expansion for a seventh straight month. It eased slightly from May's 51.8 but exceeded analysts' forecast of 51.6. The reading aligned with an official survey on Tuesday, showing factory activity returning to expansion on robust export orders.

Japan's PMI rose to 54.8 from 54.5, expanding for a sixth consecutive month with new orders growing at their fastest pace in more than two years. However, input cost inflation remained at a nearly four-year high, signaling mounting price pressures that could crimp corporate margins and contribute to broader inflation.

South Korea's factory activity expanded for a seventh consecutive month, though at a slower pace due to falling export demand.

"Firms frequently reported that rising raw material prices, alongside difficulties sourcing and receiving inputs due to delays and shortages, weighed on sector performance," said Usamah Bhatti, economist at S&P Global Market Intelligence.

Factory activity in most other Asian emerging economies also continued to expand. The Philippines held steady at 50.9 from 50.8, while Malaysia rose to 50.7 from 49.9. Taiwan and Vietnam also recorded expansion.

A separate survey showed India's manufacturing sector expanded at its second-slowest pace in four years as export orders suffered from softer demand in Europe.

Across both regions, cost pressures moderated somewhat but stayed elevated. Supply shortages and shipping delays continued to lengthen lead times, suggesting the energy shock from the Middle East conflict could still intensify in the coming months.

The data provides a mixed picture for policymakers. In Europe, the modest manufacturing expansion offers some relief as the ECB grapples with above-target inflation. In Asia, the AI-driven strength highlights the region's growing role in global technology supply chains and its relative resilience to geopolitical disruptions.

For businesses, the surveys point to an environment where demand for technology-related goods remains robust, but input costs and supply chain frictions require careful management. Companies in AI-adjacent sectors appear better positioned to weather current challenges, while those more exposed to traditional manufacturing and energy costs face greater headwinds.