Germany and France weighing down eurozone manufacturing sector

Manufacturers in the euro area remained under pressure midway through the third quarter, with downturns in factory output continuing across the majority of nations, according to the HCOB Eurozone Manufacturing PMI survey for August, compiled by S&P Global. Overall new order inflows fell at the sharpest rate in 2024 so far, leading retrenchment efforts to continue as manufacturers reduced input purchasing, employment and inventories. In addition, business confidence slipped to a five-month low.

Nevertheless, despite a rapid contraction in sales, prices charged for eurozone goods increased for the first time since April 2023 amid a third consecutive monthly rise in operating costs.

Eurozone manufacturing PMI registered 45.8 in August, as was the case in both June and July, signalling another solid deterioration in operating conditions across the euro area manufacturing sector. The headline index has registered in sub-50.0 territory continuously since July 2022.

Of the nations covered by the PMI surveys, the euro area’s big-two economies - Germany and France - provided the strongest drags on aggregate factory performance in August. In both instances, manufacturing conditions worsened. The only countries that registered growth were Greece, Spain, and Ireland, although rates of improvement slowed in the former two.

Factory performance was dented by a further steep contraction in new orders during August. The decline in total sales was the most pronounced in the year-to-date and broadly in line with that seen on average across the current 28-month period of shrinking demand. Weaker intakes of new export* business were also recorded, with the rate of decline at its steepest for eight months.

A sharper downturn in sales placed a greater onus on eurozone manufacturers’ backlogs as a means to support production. Indeed, outstanding business volumes fell at the fastest rate since February. The decline in output slowed slightly and was markedly softer than that for new orders.

Nevertheless, retrenchment and cost-cutting efforts were seen across the survey data in August. Purchasing quantities decreased at a pace that was not only substantial but also the strongest since April. For the nineteenth month in a row, the volume of inputs held as stock contracted, while inventories of finished products likewise fell. Rates of decrease did slow in both cases, however.

Meanwhile, factory employment levels within the eurozone were reduced further midway through the third quarter, extending the current run of job cuts to 15 months. Lower staffing numbers coincided with another month in which business confidence weakened. Overall expectations for output growth in the year ahead were at their weakest since March and below the series long-run average.

For a third consecutive month, eurozone manufacturers reported increased overall input costs. The inflation rate slowed fractionally but held close to July’s 18-month high. Despite sharp and sustained contractions in new orders, eurozone goods producers lifted their prices charged for the first time since April 2023. However, the extent of the increase in selling prices was modest.

“Things are going downhill, and fast,” commented Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank. “The manufacturing sector has been stuck in a rut, with business conditions worsening at the same solid pace for three straight months, pushing the recession to a gruelling 26 months and counting. New orders, both domestic and international, are slowing down even more, dashing any short-term hopes for a rebound. Adding insult to injury, input prices have been creeping up again since June. There is a silver lining insofar as companies managed to pass some of these higher costs onto their customers in August.”

 

G-20 growth and inflation converging to steady state in 2025 - Moody’s

Moody’s envisions most G-20 economies moving from cyclical recovery to a steady expansion phase of this cycle in 2025 in its latest macro report. The post-Covid expansion will be extended with gradual monetary policy normalisation. With the Federal Reserve’s inflation goal broadly met, rate cuts starting in September are near certain. Once the Fed joins other major central banks in cutting rates, synchronised monetary policy easing should help alleviate a key source of uncertainty. Core economic resilience, structural growth factors and domestic business cycles will determine the growth potential of each economy.

Global growth is stabilising and inflation in most markets is close to central bank targets. Moody’s expects global growth to slow to 2.7% in 2024 and 2.5% in 2025, from 3.0% in 2023, though growth trends differ across countries. Real economic activity in the advanced industrialised G-20 economies will slow slightly to 1.7% in 2024 and 1.6% in 2025 from 1.8% last year. Growth in G-20 emerging markets will decline to 4.1% in 2024 and 3.8% in 2025 from 4.7% last year. Its revisions to GDP growth projections are within the normal range of forecast error margins and mainly because of modestly stronger- or weaker-than- expected data in the first half of the year.

Tamer inflation also gives central banks flexibility on interest rates. Moody’s expects the Fed to begin rate cuts in September with the federal funds rate being reduced by 75 basis points (bps) this year and 125 bps in 2025. More front-loaded policy easing is possible if the labour market continues to weaken. Other major central banks have already cut rates to align with economic realities and will continue normalising their policy stances. The Bank of Japan (BoJ) is raising rates, expecting inflation to remain around its 2% target. Synchronised easing will cement lower rate expectations early in the normalisation process and should help contain episodic financial market volatility.

The report also highlights that a deteriorating US economic outlook is the most immediate risk. Risks from a restrictive monetary policy stance linger. In addition, geopolitical frictions and accompanying policy-driven geo-economic fragmentations have long-term implications for cross-border trade, investment and growth. Ongoing conflicts in Ukraine and the Middle East are sources of uncertainty. Rising protectionism, including restrictions on cross-border trade and investment flows and immigration, has associated output costs and can reduce global welfare. Businesses face increased risk mitigation costs because of the rapidly changing geo-economic landscape, including for building supply chain redundancy and resilience, insurance, and other forms of risk management. Cyber and climate risks add to these burdens, the report concludes.

 

Strong UK business confidence reflected in rising economic optimism

The latest Lloyds Bank Business Barometer showed that business confidence remained at 50% in August. Although there was no increase to the overall confidence figure, the result highlighted the continued positivity amongst businesses, with confidence still at the highest level reported since November 2015. 

This continued confidence was displayed in the economic optimism metric, which increased from 45% in July to 47% in August, continuing the upward trajectory of confidence readings throughout 2024. Meanwhile, trading prospects remained positive, albeit with a minor decline, to 54% in August – down from 56% in July. However, this result is still the second-highest recorded in 2024.

Price expectations among firms decreased once again for the second time in three months. In August, 58% of firms planned to raise prices in the next year (down from 60%), whereas 4% intended to lower them (up from 3%). The net balance dropped three points to 54%, making it the second lowest in 2024, with a three-month average of 55% - the lowest since September 2023. Despite this decline, the net balance remained high in contrast to pre-Covid levels. 

Output expectations for the various sectors remained at or near their three-year highs. Construction had a steep increase to 58%, up by 14 points, whereas other sectors experienced slight declines. Trading prospects for manufacturing dropped by 2 points to 58%, at the same level as construction, while Retail and Services fell to 53% down 7 and 3 points respectively.

Six of the UK’s 12 regions reported higher business confidence in August, with the Northeast and Scotland being the most upbeat, followed by London and the Northwest. Although the East Midlands and East of England displayed lower confidence this month, they remained above the national average. Wales, the Southwest and Yorkshire & the Humber were in the lowest quartile. However, the latter two regions still showed higher confidence in August compared to July.

“As in July we’ve seen a particularly strong outcome for business confidence,” commented Hann-Ju Ho, Senior Economist, Lloyds Bank Commercial Banking. “It remains at an elevated level of 50%, which is well above the long-term average of 29% - and it has been above the average for the past 15 months. Official GDP data for the first half of this year was encouraging and the survey results indicate that solid economic performance will likely continue as we move into the second half of the year. On a more cautious note, we have seen wage growth expectations pick up this month, although not enough to negate the downward trend so far in 2024. Overall, the economy looks to be stable and from the positive results recorded, businesses are echoing this sentiment.”

 

Newgen Software launches low-code trade finance platform in Middle East

Newgen Software Technologies, a global provider of low-code digital transformation solutions, has launched its trade finance platform in the Middle East. Banks and financial companies from across the region can now use the platform to unify and digitise legacy systems, enabling them to achieve scale and efficiency while unlocking new growth opportunities.

Newgen bills the platform as the world’s first low-code, end-to-end automated system capable of orchestrating user journeys in the financial sector. Built on the NewgenONE digital transformation platform, the software streamlines trade finance by embedding content within applications to facilitate real-time access to disparate information across an organisation.

Powered by AI-based analytics, the platform can run trade intelligence on transactional and regulatory behaviour, enabling users to enhance risk management and prevent fraud. The software’s technology allows customers to reduce manual data entry requirements, improve customer communications and implement better compliance and data security. It can also streamline the intake of requests across channels and automate processes such as bank guarantees, invoice financing sales, export and import collections, letters of credit and more.

Newgen’s system allows banks to automate every aspect of trade finance, such as digitising documents, automating data extraction and classification, performing intelligent routing and delegation, enabling smart approvals and decisions, managing communications, and executing straight-through trade transactions, including the most complex charge calculations.

Users can leverage the trade finance platform’s built-in compliance support, which spans international and domestic regulations from banks and governments. The software also features robust integration capabilities and advanced cloud and functional architecture, meaning organisations can configure the system based on the model that best suits their requirements, whether centralised, decentralised, or hybrid.

 

Qatar Financial Centre issues digital assets framework 2024

In line with the Third Financial Sector Strategy issued by Qatar Central Bank, the Qatar Financial Centre Authority (QFCA) and Qatar Financial Centre Regulatory Authority (QFCRA) have announced the launch of the QFC Digital Assets Framework, an innovative regime for the creation and regulation of digital assets in the QFC. The development of the framework is one of the goals established by the Third Financial Sector Strategic Plan.

The QFC Digital Assets Framework 2024 establishes the legal and regulatory foundation for digital assets, including the process of tokenisation, legal recognition of property rights in tokens and their underlying assets, custody arrangements, transfer, and exchange.  The framework also provides for the legal recognition of smart contracts. The framework will ensure a secure and transparent digital asset ecosystem in the QFC, in line with the highest international standards and best practices. The framework sets high standards for the process of asset tokenisation and puts in place a trusted technology infrastructure that will ensure trust and confidence among consumers, service providers, and industry stakeholders.

The QFC Digital Assets Framework is the result of a process of consultation and collaboration with industry stakeholders, which was coordinated through an advisory group comprised of thirty-seven domestic and international organisations from the financial, technology, and legal sectors. Since the launch of the QFC Digital Assets Lab in October 2023, over twenty start-ups and fintech firms have been accepted into the lab to develop, test, and commercialise their digital asset products and services. The operation of the QFC Digital Assets Lab took place in parallel with the QFC Digital Assets Framework emphasising the important role that industry engagement and collaboration has played in the development of the framework.