August 1, 2012 / 7:03 AM / 6 years ago

Global factories struggle as growth fears rise

NEW YORK/LONDON (Reuters) - U.S. and euro zone manufacturing struggled again in July while factory activity in China hit an eight-month low, surveys showed on Wednesday, as economies worldwide appeared to lose momentum.

A labourer works inside a steel factory in the eastern Indian city of Siliguri July 16, 2009. REUTERS/Rupak De Chowdhuri

Economic malaise was worst in the 17-country euro zone, where output plummeted and the manufacturing sector contracted for an 11th straight month 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, while U.S. manufacturing contracted for a second consecutive month, according to the Institute for Supply Management’s index of national factory activity.

“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.”

The timing of such action was unclear, however. The Fed on Wednesday acknowledged the economy had weakened but did not offer any new measures, disappointing markets.

“It was very status quo at a time when people are saying the economy is getting worse,” said Nicholas Colas, chief market strategist at The Convergex Group in New York.

Markets expect the European Central Bank to act as soon as Thursday, possibly with a round of government bond purchases, though insiders have told Reuters that bold policy action could be weeks away.

“The euro zone continues to struggle with the debt crisis, while the world economy is slowing down,” said Peter Vanden Houte at ING. “This last piece of information should give policymakers food for thought.”


IMF Managing Director Christine Lagarde said worrisome signs from all corners of the world have hurt investor confidence.

That was especially so in developed economies. Markit’s Eurozone Purchasing Managers’ Index for the manufacturing sector fell to 44.0, well below the 50 level that divides growth from contraction. It was the lowest since June 2009.

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. Global manufacturing

> European manufacturing PMIs

> U.S. ISM manufacturing

> UK manufacturing PMI


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

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

Consumers appeared in no mood to make big-ticket purchases last month either. All three U.S. automakers reported lower-than-expected sales last month. The largest, General Motors Co, reported a 6 percent drop in sales.

Some fear more monetary stimulus from the Fed, which has already pumped $2.3 trillion into the U.S. economy and has held interest rates at zero since 2008, may not be enough.

“The global economy is slowing, and I don’t think there’s much the Fed can do about it,” said Steven Ricchiuto, chief economist at Mizuho Securities in New York.

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.

Chinese President Hu Jintao was quoted on Tuesday as saying fiscal and monetary policy support for the economy would increase in the second half.

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

Additional reporting by Lucy Hornby in Beijing; editing by Padraic Cassidy, James Dalgleish and Kenneth Barry

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