The shadows over the global economy darkened on Thursday as data showed the eurozone's private sector contracted, U.S. manufacturing growth slowed and China's once-booming factories faltered.
In Europe, a downturn that started in smaller states on the eurozone's periphery is now taking root in the core countries of Germany and France, where tepid growth had been the main ballast of support for the euro area economy.
"We are very much in a period of weakening global growth. It doesn't quite feel like 2008 yet, but the danger is we could get there quicker than we think," said Peter Dixon at Commerzbank.
The eurozone composite PMI, or purchasing managers index, comprising the services and manufacturing sectors, fell to 45.9 from April's 46.7, its lowest reading since June 2009 and its ninth month below the 50-mark that divides growth from contraction.
The data sent German Bund futures to a record high as investors sought a safe haven, while the euro neared a two-year low against the dollar.
U.S. LOSES MOMENTUM, CHINA BRAKES
Europe's woes were felt across the Atlantic.
Financial information firm Markit's "flash" U.S. manufacturing PMI slipped to 53.9 in May from 56.0, with slower export sales sapping momentum.
Markit, which also compiles the eurozone PMIs, released its U.S. index for the first time on Thursday but has been tracking data in the entire sector since late 2009.
"The cause seems to lie largely with weak export sales, which likely reflects the deteriorating economic situation in Europe as well as slower growth in China," said Markit chief economist Chris Williamson.
China, mired in its longest economic slump since the global financial crisis, got more bad news on Thursday when HSBC's Flash China PMI, the earliest indicator of the Chinese industrial sector, fell to 48.7 in May from 49.3, marking the seventh straight month it has been below 50.
The government's official PMI hit a 13-month high in April, but that gauge includes state-owned firms with better access to credit.
Nikolaus Keis at Unicredit lamented that recent Chinese data on exports, imports, industrial production and retail sales "all fell short of the most pessimistic forecasts," suggesting more trouble ahead for the world's second largest economy.
SUMMER SWOON FOR U.S.?
Manufacturing has been a bright spot for the U.S. economy, with the Markit index showing the sector has expanded for 32 straight months.
But as the pace of hiring across the economy has slowed, economists worry about whether demand will hold up this summer.
"We are seeing slower growth globally, including China," said Sam Bullard, senior economist at Wells Fargo in Charlotte, North Carolina. "Manufacturers remain cautious. We have seen evidence of softer equipment demand in the first quarter and that softness will likely continue into the second quarter."
China's government this week said it intends to speed up important infrastructure investment and signaled a desire to raise private investment in its energy sector. Its central bank has cut reserve requirements three times since November in hopes of cranking up lending.
The U.S. Federal Reserve, on the other hand, probably will not need to ease monetary policy further, New York Fed President William Dudley said on Thursday, though he refused to rule it out should the economy take a turn for the worse.
The Fed has already signaled intentions to hold borrowing costs at near zero for at least another two years.
GREECE ON THE BRINK, EURO CORE CRUMBLING
The stiffest challenge may rest with policymakers in Europe, who urged Greece not to quit using the euro but were said to be planning contingency plans just in case.
Leaders disagreed about the wisdom of introducing common eurozone bonds to relieve funding pressure on those countries struggling to reduce deficits and simultaneously boost growth.
The prospect of a Greek exit from the eurozone is now being openly discussed as the country battles political and economic upheaval and faces an election on June 17.
Beyond Greece, even Europe's core countries are running into trouble. The manufacturing sector in Germany, Europe's largest economy, contracted at a far greater pace than was expected, and its service sector saw minimal growth. In France, both sectors contracted faster than predicted by most economists.
German business sentiment also dropped for the first time in seven months in May, the Ifo think tank said, missing even the most conservative forecasts.
For the eurozone, Markit said the composite reading was consistent with gross domestic product, which stagnated in the first quarter, falling by at least 0.5 percent across the region in the current quarter.
"It clearly indicates that the evaporating sentiment seen in recent weeks as the Greece crisis has intensified is having a big impact on the economy," Commerzbank's Dixon said.
Across the channel, Britain's economy shrank by more than initially thought between January and March, hit by the deepest fall in construction output in three years.
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