Manufacturing output experienced a significant downturn in January, marked by weakened foreign orders and domestic demand. As the global economy continues to struggle, further challenges are anticipated for the manufacturing sector in 2025. The uncertainty surrounding former President Donald Trump's trade policies has further dampened foreign sales, contributing to the economic headwinds.
In the latest reports, the manufacturing sector contracted in January, with the index easing to 49.1, and non-manufacturing PMI falling to 50.2. These figures reflect a stagnation in service activities, with readings barely above the pivotal 50 level, indicating minimal growth. Additionally, China's services and manufacturing sectors both decelerated in January, further highlighting the global economic slowdown.
The third-quarter inflation report is scheduled for release early on Wednesday, drawing significant attention from market analysts and economists. The Reserve Bank of Australia (RBA) has maintained the cash rate at 4.35% since November 2023, opting for stability amidst economic uncertainties. However, markets have priced in about an 80% chance of a quarter-point cut at the February meeting, as CPI is expected to ease to 2.5% from a previous 2.8%.
The broader economic landscape is further complicated by the dynamics between US and Chinese tech industries. Chinese tech startups are disrupting the AI space, challenging the dominance of US tech giants and adding another layer of complexity to international trade relationships. Meanwhile, China's GDP reached 5% in 2024, but deflation persists, with consumer spending remaining weak.
The US dollar has demonstrated broad strength today, influenced by Trump's tariff threats. These threats have contributed to market volatility and uncertainty within international trade channels, affecting various sectors globally. The manufacturing sector's contraction, coupled with stagnant service activity, underscores the fragile economic environment.