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Fears of global slowdown gain momentum

Eurozone appears headed for second recession in three years

Image Credit: EPA
A Siemens factory in Leipzig, Germany. Germany posted a budget surplus for the first half ofthe year, despite the long-running Eurozone debt crisis, according to data released on Thursday.
Gulf News

New York/London: World business surveys on Thursday painted a picture of economic malaise stretching from Beijing to Berlin, adding to concerns that the world economy was slowing down.

The 17-country Eurozone appeared headed for its second recession in three years. Financial data firm Markit said it’s Purchasing Managers’ Index suggested the Eurozone economy would shrink about 0.5 per cent in the current July-to-September quarter.

Europe’s problems created headaches in other economies as well, particularly China’s, which counts Europe as its single biggest export market. The HSBC Flash China manufacturing PMI fell to 47.8 in August, its lowest level since November.

By contrast US manufacturing activity improved slightly this month, though new export orders declined for a third straight month because of reduced demand in Europe, while the pace of hiring slowed for the fifth month in a row.

A separate report showed the number of Americans applying for first-time jobless benefits rose unexpectedly last week.

“The indicators taken as a whole indicate a material slowdown in the pace of the world economy,” said economist Philip Shaw at Investec.

Whether that will be enough to provoke more action from central banks remained unclear, though. The European Central Bank is expected to cut interest rates next week, but analysts do not expect additional steps to stimulate lending.

And while minutes from the last US Federal Reserve meeting suggested another round of stimulus could come “fairly soon,” subsequent signs of improvement in the labor and housing markets may keep the central bank on the sidelines for a while longer.

St. Louis Fed President James Bullard on Thursday said the pace of US growth would have to worsen more significantly before the Fed acted. “Going along at this slow pace is not enough to justify gigantic action,” he said.

Tim Ghriskey, chief investment officer at Solaris Asset Management, said Thursday’s US manufacturing data was “in line with the sort of recent economic data we have seen, which saw slight but improving economic conditions.”

Deeper trouble

News from Europe has been less encouraging. Data Thursday showed the downturn was spreading throughout the countries that use the euro, with woes that started in the smaller states taking root in core economies such as Germany.

The flash composite PMI for Germany fell to a three-year low, a fourth straight month of contraction.

German economic growth slowed to 0.3 percent in the second quarter, suggesting it can no longer be counted on to pull the Eurozone out of a deep slump.

“Another reminder that a chronic lack of economic growth in the Eurozone will continue to impede efforts to bring the debt crisis to an end,” said Jonathan Loynes, chief European economist at Capital Economics

The Eurozone composite PMI, which measures manufacturing and services together, was slightly better than a month earlier but remained below 50, the dividing line between contraction and growth, for a seventh straight month.

“August’s flash Eurozone PMI does nothing to challenge the notion that the single currency area is now firmly in recession,” Loynes said

The Eurozone economy shrank by 0.2 percent in the three months to June, according to official data. Economists polled by Reuters last week predicted a similar outcome for the current quarter, with no growth until the start of next year.

Demand dip

Japan said on Wednesday that exports slumped the most in six months in July as shipments to Europe and China tumbled. Exports from Taiwan, a key part of the global technology supply chain, fell for a fifth straight month in July and South Korea, home to major carmakers, computer chip and flat-screen producers, recorded its sharpest export fall in July in nearly three years.

Six consecutive quarters of slowing Chinese growth have also taken a toll on commodities markets, with falling prices and an uncertain outlook prompting miner BHP Billiton to shelve a $20 billion expansion project in Australia.

“Today’s PMI report is a clear reminder that the slowdown is not yet over and that the Chinese economy is still too shaky to recover without ongoing policy stimuli,” said Nikolaus Keis at UniCredit. “The pressure on the Chinese authorities to further step up their policy accommodation is therefore growing.”

China has been fine tuning policies to keep growth on track without releasing curbs on the property sector.