A worker dries thread after dyeing at a factory in Lahore on Jan 2, 2023. (PHOTO / AFP)

LONDON/TOKYO – Manufacturing activity across Europe and Asia contracted again last month, underscoring the fragility of the global economic recovery, although factories in the euro zone at least may have passed the trough, surveys showed on Wednesday.

Price pressures slackened and the fall in demand moderated in the 20 countries sharing the euro, driving a surge in optimism. The bloc eked out growth in the final three months of 2022, managing to avoid a recession, official data showed on Tuesday.

S&P Global's final manufacturing Purchasing Managers' Index (PMI) climbed to a five-month high of 48.8 in January from December's 47.8, in line with a preliminary reading but still below the 50 mark separating growth from contraction.

"We think in general the worst is now past for both inflation and the activity front. The activity is not softening, it is going back up, so expectations are for a rebound," said Mateusz Urban, Senior Economist at Oxford Economics.

ALSO READ: IMF lifts 2023 global growth forecast to 2.9%

Manufacturers in Germany, Europe's largest economy, started 2023 with a slightly brighter outlook on the year ahead despite demand continuing to fall as inflation and supply chain problems eased

Manufacturers in Germany, Europe's largest economy, started 2023 with a slightly brighter outlook on the year ahead despite demand continuing to fall as inflation and supply chain problems eased.

In France, the bloc's second-biggest economy, factory activity returned to growth albeit not as strongly as initially forecast.

But British manufacturing business shrank for a sixth month in a row in January, kicking off a tough 2023 when the country's economy looks set to fall into a recession.

Easing price pressures will however be welcomed by central bank policymakers. Soaring inflation – initially described as transient – has proved far more sticky than thought and prompted aggressive monetary tightening.

ALSO READ: Global factory output weakens on widespread slowdown

The US Federal Reserve looks set to hike borrowing costs by 25 basis points later on Wednesday, a Reuters poll found. The European Central Bank and the Bank of England are both expected to add 50 basis points on Thursday, separate Reuters polls found.

Euro zone inflation eased for the third straight month in January but relief may be limited as underlying price growth held steady, official data showed on Wednesday.

Asia

In Asia, softening input-price pressures offered initial positive signs, with the pace of contraction in output slowing in Japan and South Korea, the surveys showed.

But there is uncertainty about whether the region can weather the hit from slowing global demand and stubbornly high inflation, some analysts say.

"The worst of Asia's downturn is behind, but the outlook is clouded by weaknesses in major export destinations like the United States and Europe," said Toru Nishihama, chief economist at Dai-ichi Life Research Institute in Tokyo.

ALSO READ: Japan Inc strives to lure skilled workers as inflation bites

"With the recovery from COVID-19 under way, Asian economies need a new growth engine. There isn't one so far."

Factory activity expanded in January in Indonesia and the Philippines but shrank in Malaysia and Taiwan region, PMI surveys showed. India's manufacturing industry started the year on a weaker note, expanding at the slowest pace in three months.