A contraction in
manufacturing business spread further around the world in August
as the euro zone's troubles inflicted more damage on the global
economy, business surveys showed on Monday.
The three-year-old sovereign debt crisis has probably thrown
the 17-nation euro zone back into recession in the current
quarter. With no firm signs of any resolution, households and
companies are wary of spending and demand for goods is drying
up.
Worryingly for European Central Bank policymakers meeting
this week, the downturn that began in smaller euro zone
economies is now clearly sweeping through Germany and France.
That, in turn, is damaging many of Asia's export-reliant
economies.
"The general picture is one in which we are losing
momentum," said Peter Dixon, an economist at Commerzbank.
"Growth is going to struggle, not just in the euro zone but
everywhere, over the next few months until authorities find a
way to inject some positive sentiment."
Markit's final Eurozone Purchasing Managers' Index (PMI) for
manufacturing fell from an earlier flash reading of 45.3 to
45.1, above July's three-year low of 44.0. But that was its 13th
month below the 50 mark separating growth from contraction.
Britain bucked the trend by posting a surprise rise in its
PMI - although it still showed contraction - and similar data
expected from the U.S. Institute for Supply Management on
Tuesday is forecast to show a reading of 50.
In Sweden, which has consistently outperformed the rest of
Europe, the PMI tumbled unexpectedly to a three-year low as
exporters' long-standing resilience began to erode.
China's official PMI fell below 50 for the first time since
November, while a similar survey from Markit, sponsored by HSBC,
showed activity shrinking at its fastest pace since March 2009.
HSBC PMIs covering Asia's other major exporters told a
similar tale. South Korea's reading was below 50 for the third
month and Taiwan's PMI fell to its lowest level since November.
The reports showed new orders under pressure as fears grow
that the euro zone is sliding into recession and the United
States struggles to build up any economic steam.
Even in India, where the manufacturing sector has expanded
without a break for more than three years, new export orders
fell in August at their steepest pace since October. Indonesia's
factory activity also expanded in August, but new export orders
fell for the fifth month in a row.
China's PMIs reinforced expectations that the pace of
growth in the world's second-largest economy is weakening. Chief
among manufacturers' concerns are the softness in new orders as
demand falters, particularly from the euro zone.
Beijing is taking what it calls a "prudent" policy stance in
supporting the economy for fear of re-igniting property and
inflation risks.
China cut interest rates in June and July and has been
injecting cash into money markets to ease credit conditions. The
latest data raises doubts as to whether Beijing has done enough
to stop the slowdown from extending to a seventh quarter.
"The authorities seem to be running a risky policy
experiment to see how well the economy can hold up without any
big dose of stimuli," said Wei Yao, economist at Societe
Generale.
"Although we think it is a good thing that the pain
threshold of Beijing is quite high, this approach is prone to
large downside risks in the short term."
COUNTDOWN TO ECB
Having contracted 0.2 percent in the three months to June,
the euro zone economy is likely to do the same again in the
current quarter, with no growth expected until next year.
The European Central Bank is now widely expected to cut
interest rates to a new record low of 0.5 percent - either on
Thursday or next month.
"The picture for the euro zone economy remains extremely
sluggish. As such, a rate cut to 0.5 percent will be quite easy
to justify," said Annalisa Piazza at Newedge Strategy.
Inflation jumped more than expected in August, data showed
on Friday, a factor that may discourage the ECB from acting this
week, but the PMI survey showed factories had cut the prices of
their products for the third straight month.
Factories in Germany, Europe's largest economy, and France -
the second biggest - reported activity falling for the sixth
consecutive month although the rate of decline eased.
In Italy, the main index has now been below the break-even
point for over a year and was weaker than economists had
predicted. In Spain, it has been below 50 since May 2011.
These two countries are deep into austerity programmes which
are aimed at bringing their debt under control but appear to be
pinning their economies in recession.
They are looking to the ECB to help them escape this vicious
circle by buying debt issued by their governments to bring down
borrowing costs, but this policy is meeting strong resistance
from German central bankers.
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