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Tags: Global | Factories | Growth | Fears

Global Factories Struggle as Growth Fears Rise

Wednesday, 01 August 2012 11:38 AM EDT

U.S. and eurozone factory activity struggled again in July, while Chinese manufacturing fell to an eight-month low, surveys showed Wednesday, as economies around the world showed signs of slowing.

The malaise was worst in the 17-country eurozone, where output plummeted and the manufacturing sector contracted for an 11th straight month in July as a downturn that began in smaller countries continued to spread into core euro-area economies.

The slump worsened in Italy, Spain and Greece as well as the region's two biggest economies, Germany and France.

Europe's economic woes also depressed export orders in China and India, where the manufacturing sectors had until recently appeared to be holding up despite the debt crisis and slowing growth in the United States.

U.S. manufacturing, meanwhile, contracted for a second consecutive month, according to the Institute for Supply Management's index of national factory activity.

A separate report from Markit showed activity barely expanding at its slowest pace in almost three years, partly due to reduced European demand for U.S. products.

"The manufacturing numbers are pretty dismal. There's really no good way to read them," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. "I think they bolster the case for more Federal Reserve action, and globally, the argument is pretty much the same."

Added Peter Vanden Houte at ING: "The eurozone continues to struggle with the debt crisis, while the world economy is slowing down. This last piece of information should give policymakers food for thought."

Even so, there was plenty of doubt over how much the Fed, European Central Bank and Bank of England will or can do to turn the tide.

All three will hold policy meetings this week, with the Fed set to make an announcement later on Wednesday. Markets expect another round of bond purchases, though most economists think policymakers will wait until September to act.

The ECB is seen acting as soon as Thursday, though insiders have told Reuters that bold policy action could be weeks away.

The BoE is already in the middle of a money printing campaign, recently increasing it to 375 billion pounds.


Markit's Eurozone Purchasing Managers' Index (PMI) for the manufacturing sector fell to 44.0, well below the 50 level that divides growth from contraction. The reading was the lowest since June 2009. Output fell sharply.

In Britain, the manufacturing sector shrank at its fastest rate in more than three years, dealing a blow to hopes the country may come out of recession over the summer as it hosts the Olympic Games.

ISM said its U.S. manufacturing index stood at 49.8 in July, up slightly from June but still signaling contraction. Employment fell to a 2-1/2-year low.

Another look at U.S. manufacturing from data company Markit showed the sector fared slightly better than in the ISM survey as it managed to grow, though the pace was the slowest in nearly three years.

In Brazil, weak global demand and an unfavorable exchange rate kept the HSBC Purchasing Managers' Index below 50.


Europe's problems were being felt in Asia. China's official factory PMI fell to an eight-month low of 50.1 in July.

Analysts drew some comfort from the slight improvement in the HSBC China PMI, which rose to 49.3 and focuses on smaller private enterprises while the official PMI primarily covers big state companies.

Unlike central banks in developed economies, China also has plenty of room to cut interest rates.

"The low inflation environment should allow Chinese authorities to provide further stimulus in coming months," said Craig James, economist at Commsec in Sydney.

But 10 of China's 11 major sub-indexes in the official PMI were under 50, showing just how much the economy is struggling to revive its momentum, with little evidence of measures aimed at boosting domestic demand taking quick effect.

Manufacturing looked weak across Asia. Activity in South Korea shrank by the most in seven months, Taiwan contracted again and factories in India, Asia's third-largest economy, showed the sharpest one-month drop in growth since September.

China, the world's second largest economy, faces a sensitive few months with a leadership succession looming later this year for the ruling Communist Party.

President Hu Jintao was quoted on Tuesday as saying fiscal and monetary policy support for the economy would be stepped up in the second half, while Premier Wen Jiabao spoke of policy fine-tuning and signs that the economy was stabilizing.

© 2023 Thomson/Reuters. All rights reserved.

Wednesday, 01 August 2012 11:38 AM
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