Factory boom persists despite oil shock, but product mix shifts
Oil and energy costs continue to strain transport, electricity and industrial inputs, pushing factory selling prices to their fastest growth in over three years. Despite this pressure, the global manufacturing sector is expanding at its fastest pace in four and a half years, with the Global Manufacturing Purchasing Managers' Index rising to 53.0 in September, its highest level since February 2022. Production recorded its strongest increase since July 2021, while new orders and global trade also picked up.
Manufacturers are navigating elevated energy expenses by shifting their product mix rather than halting expansion plans. The manufacturing upturn is being driven by two powerful sources of demand: artificial intelligence infrastructure and defence equipment. The AI boom is driving demand for semiconductors, servers, electrical equipment and other hardware needed to build data centres, while defence spending creates additional demand for industrial goods. Not every factory faces the same economic conditions; manufacturers producing goods with strong demand and limited supply can absorb or pass on higher energy and transport costs more readily than those producing goods where consumers are already cutting back.
This dynamic is creating an increasingly uneven manufacturing recovery. Taiwan's manufacturing PMI climbed to 56.7, supported by strong AI and semiconductor demand, while South Korea saw sharp increases in factory activity with new orders and production recording their strongest growth in about five and a half years. The eurozone manufacturing PMI rose to 52.9 in September, its highest level since May 2022.
