World factory output slowed in August as worries about the eurozone and US debt reduced confidence, heightening fears the global economy could sink back into recession. Manufacturing contracted in the eurozone 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.
--- Eurozone factory sector shrinks for first time in 2 years
--- Asian manufacturers struggling
In China and the United States, similar surveys showed worrisome signs for future manufacturing. The Global Manufacturing purchasing managers index, compiled by J.P. Morgan with research and supply organisations, fell in August to 50.1, indicating growth has stalled, as new orders declined for a second month. "There is a risk of a return to recession," said Jeavon Lolay at Lloyds Banking Group. "We are not out of the woods."
The modest US factory growth and a separate report showing a drop in new claims for jobless benefits stood in contrast to a slump in consumer and business confidence that has threatened to trigger a "double-dip" US recession. Economists and markets await Friday's US payroll report for August, which could show whether a political battle in Washington 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 United States while Europe's poorer southern nations slash 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," although the full purchasing managers' index 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.
EUROZONE 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 percent 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 United States 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 said its index of national factory activity ticked down to 50.6, just above the 50-level separating expansion and contraction. While overall factory activity still pointed to growth, though slow, measures of output and new orders dipped.
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 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. That leaves the big emerging economies as the best hope for propping up global growth. But they are also struggling, and 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.