London/Washington: World factory output slowed in August as worries about the euro zone and U.S. debt reduced confidence, heightening fears the global economy could sink back into recession.
Manufacturing contracted in the euro zone for the first time in almost two years, echoing earlier data from South Korea and Taiwan where new export orders fell sharply, surveys of company purchasing managers showed on Thursday.
In China and the United States, similar surveys showed worrisome signs for future manufacturing.
The Global Manufacturing purchasing managers index, compiled by JPMorgan with research and supply organizations, fell in August to 50.1, indicating growth has stalled, as new orders declined for the second month running.
“There is a risk of a return to recession,” said Jeavon Lolay at Lloyds Banking Group. “We are not out of the woods.”
The euro slumped against major currencies on the disappointing European data, while American stocks gained after traders took heart that the U.S. factory data did not point to an outright contraction as was expected.
Indeed, the modest factory growth and a separate report showing a drop in new US jobless claims stood in contrast to a slump in consumer and business confidence that has threatened to trigger a “double-dip” recession in America.
Economists await a US payroll report for August due on Friday which could show if a political battle in Washington D.C. in July over the US fiscal deficit and debt led businesses to cut back on hiring.
Fast-growing economies in Asia are feeling the pinch in their exports as economic growth slows in Europe and the US and Europe’s poorer southern nations are slashing government spending as the region battles a sovereign debt crisis.
China exports orders fall
China’s new export orders index fell and Beijing pinned the blame at least partly on the debt crises in advanced economies.
The country’s statistics bureau said the export sector was “facing challenges.” The full purchasing managers’ index (PMI) for the month increased slightly.
HSBC’s PMI reading for China, which relies more heavily on private companies than the large state-owned enterprises that dominate the government PMI report, showed growth in factory activity, while still rapid, was slowing.
“The West’s deteriorating growth outlook is becoming an increasingly heavy burden to bear,” said Donna Kwok, an economist with HSBC, which sponsors PMI reports in many Asian countries.
Euro zone manufacturing contracts
Markit’s Eurozone Manufacturing PMI fell to 49.0 in August. It was the first time since September 2009 that the index for the sector, which drove a large part of the bloc’s recovery, has fallen below the 50 mark.
In a worrying sign for policymakers, the slowdown appears to be spreading. German factories, which have been supporting growth in the bloc, eased off the accelerator and French manufacturing contracted for the first time since July 2009.
The German economy’s growth slowed to just 0.1% in the second quarter, figures released Thursday showed, adding to evidence the outlook for Europe’s largest economy darkens.
Euro zone leaders have been battling to prevent a debt crisis spreading from periphery members to some of the bloc’s bigger economies while the US has been fighting its own demons of sluggish growth and impending tough austerity measures.
Outside the euro zone, Britain’s manufacturing sector shrank at its fastest pace in over two years, while Switzerland said on Thursday its economy grew at its slowest pace since 2009.
In the United States, the Institute for Supply Management (ISM) said on Thursday its index of national factory activity ticked down to 50.6. A reading below 50 means contraction.
Most advanced economies have already cut interest rates to near zero, and with government finances constrained, policymakers have limited options for spurring stronger growth.
Brazil’s central bank cut its key interest rate on Wednesday in a surprise decision that it said reflects a the global economic slowdown as well as weaker growth in Latin America’s largest economy.
The European Central Bank, the US Federal Reserve and the Bank of England are all seen retaining their ultra-loose monetary policy for at least another year.
So that leaves the big emerging economies as the best hope for propping up global growth but they are also struggling.
But the outlook is far from rosy because Asian powerhouses still depend on Europe and the United States to buy their exports.
“Asian growth is set to slow more sharply than most expect over the coming months,” Credit Suisse economist Robert Prior-Wandesforde wrote in a note to clients.