Global factory activity picks up in August on AI demand, European orders

Global factory activity showed resilience in August, with surveys pointing to a broad-based expansion driven by strong demand for AI-related hardware in Asia and a rebound in European orders.

The euro zone's manufacturing sector grew at its fastest pace in more than four years, according to the S&P Global Purchasing Managers' Index (PMI), which rose to 52.7 from 51.9 in July. The reading, just below a preliminary estimate, marked the highest level since May 2022. Germany also recorded its strongest growth in over four years, while France returned to expansion after a contraction in July. In contrast, Italy and Spain saw activity decline.

Britain, outside the euro zone, saw a slight slowdown in factory growth, but hiring accelerated to a two-year high as production requirements rose.

In Asia, factory activity expanded across China, Japan, and South Korea, supported by solid demand for chips, computers, and other AI-related products. China's PMI rose to 51.5 in August from 50.9, beating expectations, though an official survey indicated broader industrial weakness persists.

Japan's manufacturing sector gathered momentum, with new business growing at the fastest pace since January 2018, driven by semiconductor and AI demand. The PMI rose to 54.9, marking an eighth consecutive month of expansion. South Korea's PMI eased to 52.3 but remained above the 50 threshold for a ninth straight month, helped by strong export growth.

The upbeat data comes amid uncertainty from the prolonged U.S.-Iran war, which has disrupted shipping through the Strait of Hormuz. Efforts by mediators to reopen the key route have so far been inconclusive, though some European manufacturers have benefited from reduced Asian competition.