Euro zone manufacturing kept growing in October, with the S&P Global purchasing managers' index easing to 52.7 from 52.9 in September, final data released Monday showed. The reading beat the flash estimate of 52.4 published on Oct. 23, and September's level had been the highest since May 2022. Any figure above 50 signals expansion.

The detail that matters most for Asia sits beneath the headline. Export orders rose at the sharpest pace in more than four and a half years, according to Reuters' report on the survey, and factories raised their purchases of inputs at the fastest rate in nearly four and a half years. For the first time since December 2022, they also started adding to stocks of raw materials. That is the kind of buying that shows up later in order books for component makers, chemical suppliers and shippers from China to South Korea.

Euro zone factories buy more, pay more

Output growth slowed to a four-month low, with the output index at 52.8 compared with 53.6 in September, but it stayed above its long-run average. Total new orders grew at a softer pace than in September. Manufacturers added staff for a third month in a row.

Six of the eight countries in the survey reported growth. France and Italy were the two that did not. The survey covers about 3,000 manufacturers in Germany, France, Italy, Spain, the Netherlands, Austria, Ireland and Greece, according to Trading Economics.

Costs are the problem. Operating expenses rose at the fastest rate in five months, and firms lifted selling prices sharply, at roughly the same pace as in September. Supplier delivery times lengthened to the worst level since June. Chris Williamson of S&P Global Market Intelligence said input cost inflation was climbing quickly again and had reached one of the highest rates in four years, driven by energy prices and supply bottlenecks, Reuters reported. Crude futures have traded above $116 a barrel, about 60% higher than before the Iran war, according to the same report.

Williamson also described factory growth since February as resilient. Restocking can amplify that: when companies fear longer lead times and higher prices, they tend to order early, which pulls demand forward. Whether that demand holds once inventories are rebuilt is the open question for exporters supplying Europe.

ECB pressure and a weaker euro

The cost data land on the desk of a central bank that has already signaled it may move again. The European Central Bank kept its deposit rate at 2.50% on Oct. 29. In its statement, the Governing Council said the larger and longer energy shock is likely to raise inflation and reduce growth, and that it is not pre-committing to a rate path. Economists polled by Reuters last month expected a hike in December, and Christine Lagarde said during her press conference that a hike had been discussed, as Capital Times reported when the ECB held rates.

Williamson said surging input costs add to the pressure on the ECB to tighten further. The next policy decision is due Dec. 17, the second day of the Governing Council's meeting in Frankfurt, according to the ECB calendar.

Higher rate expectations have not lifted the currency. The euro recently touched a 17-month low against the dollar before recovering above $1.12 on Monday, helped by falling oil prices, Trading Economics reported. It ended October down more than 1% for the month, after third-quarter growth slowed and France's economy shrank.

What it means for Asian exporters

Against Asian currencies, the euro has lost ground since the summer. ECB reference rates show the euro at 7.4567 Chinese yuan on Nov. 2, down 4.4% from 7.7989 on Aug. 5. Over the same period it fell 8.4% against the Korean won, to 1,506.20, and 2.7% against the yen, to 177.10. Against the Singapore dollar it slipped 3.1%, to 1.4344.

That pairing of stronger European orders and a cheaper euro cuts both ways for exporters in Asia. Purchasing at the fastest pace in nearly four and a half years and the first restocking in nearly four years point to more volume for suppliers of parts, metals and chemicals. Each euro earned, though, converts into fewer yuan, won or Singapore dollars than it did three months ago, and European buyers facing sharp cost increases have less room to absorb price rises from abroad. Of the four Asian currencies above, the won has moved the most against the euro since August, based on the ECB data.

Longer delivery times also matter for Asian shippers and logistics firms. Lengthening lead times usually mean tighter capacity and firmer freight rates, which can help carriers while raising landed costs for European importers.

Before the ECB meets again on Dec. 16 and 17, the bank and investors will have a euro area inflation reading for October and November's PMI surveys to judge whether factory costs are feeding through to consumer prices.