AI capital expenditure anchors global manufacturing
In September, the global manufacturing sector maintained its resilience amid the expansion of AI spending. However, energy costs and high interest rates continue to constrain profits and policy space.
Global factory activity has rebounded again.
The manufacturing data in September showed a synchronized improvement. The eurozone, South Korea, China, and India all recorded expansion. Global factory activity did not stall due to high interest rates. This round of improvement was not a general recovery. Growth was more concentrated in capital goods, semiconductors, electronics and export chains. Consumer demand remained weak, and the demand structure was diversifying.
The S&P Global Eurozone Manufacturing PMI rose to 52.9 in September, the highest level since May 2022. New orders and export orders improved, and output remained strong. Germany performed well, and the expansion in the Netherlands was more significant. France, Italy, and Spain grew relatively moderately. Business confidence has improved, but cost pressures are still rising.
The Asian export chain has benefited, and China's manufacturing sector has returned to expansion.
In September, South Korea's manufacturing PMI rose to 53.9, with export orders increasing at the fastest pace since March 2011. The semiconductor and automotive industries jointly drove the expansion. Taiwan's manufacturing PMI rose to 56.7, with electronics and the export chain performing outstandingly. Singapore's manufacturing sector also expanded, with the electronics industry continuing to benefit from AI-related demand.
China's manufacturing PMI in September rose to 50.1%, returning to the expansion range after two months. The impact of weather disruptions weakened, and production activities recovered. High-tech manufacturing and the export chain improved. Electronics, equipment, and high-tech manufacturing maintained a high level of prosperity. Policy support and seasonal peak seasons also provided certain support.
India is expanding at a faster pace while Japan's expansion is slowing down.
The manufacturing PMI in India rose to 55.1, marking the fastest expansion in seven months. Both new orders and output improved simultaneously, and employment also showed a recovery. Demand in electronics, pharmaceuticals, textiles, and food industries increased. Export orders expanded at a faster pace, and demand from Europe, the Middle East, and the United States improved. Japan's manufacturing PMI dropped to 54.1, the lowest in six months. Output and new order growth slowed. New export orders continued to rise.
Improved demand in Asia and improved sales to the United States provided support. Japanese manufacturing did not weaken but its expansion rate declined. Global semiconductor equipment spending is expected to be significantly increased. Leading companies such as TSMC, Samsung, SK Hynix and Micron have increased investment in advanced processes, storage, and advanced packaging. Strong demand for AI servers, data centers, and high-bandwidth storage has driven up wafer factory expansion, equipment purchases, and component orders.
The energy shock persists.
Geopolitical conflicts are driving up energy prices, and the input costs for enterprises continue to rise. In the eurozone, the United Kingdom, and many parts of Asia, manufacturing industries have mentioned increased costs for fuel, electricity and transportation. Rising costs will compress profit margins. Enterprises can only partially pass on the costs through price hikes, but rapid price increases will also suppress terminal demand. Manufacturing expansion does not necessarily mean improved profitability.
The Federal Reserve and the European Central Bank maintain high interest rate levels, and rising bond yields have increased financing costs. Enterprise expansion, inventory replenishment, and equipment purchases will all be affected by capital costs. AI-related investments are still attractive at present, but high interest rates will make enterprises more cautious. Capital expenditures may be more concentrated on sections with clear returns and high order visibility rather than comprehensive expansion.