Hopes for global recovery take a hit
2011-09-02 12:01:54
The global manufacturing recovery appeared to have come to a grinding halt in August, activity surveys suggested on Thursday, undermining hopes of a vigorous economic recovery in the second half of the year.
Across Asia, Europe and the US, surveys of purchasing managers produced the lowest readings of manufacturing activity and orders since mid-2009, when the world economy was only crawling out of recession.
The figures, better than feared in the US, gave little reason to think the world economy would quickly recover from the twin summer political crises of the US debt ceiling debate and the wider loss of confidence in sovereign debt from the peripheral eurozone countries.
Global equity markets expressed relief that some of the figures – particularly those in the US – were not worse, but US equities were trading down by the afternoon in New York.
The global purchasing managers’ index, compiled by JPMorgan, fell to 50.1 in August from 50.7 in July, indicating the manufacturing sector was again struggling to increase output, having been growing strongly at the start of the year.
Although PMIs are far from perfect indicators of the health of the manufacturing sector, the generalised malaise across developed and emerging economies in measures of output and orders suggested a weakness in underlying global demand.
The US manufacturing PMI, produced by the Institute for Supply Management, was higher than expected at 50.6 in August, not the 48.5 feared by investors, but it still showed the weakest manufacturing activity in the US since July 2009. Neil Dutta of Bank of America Merrill Lynch said it showed the US economy “is weak but not collapsing”.
Similar manufacturing difficulties were evident across Asia. The two competing Chinese PMI indices notched up small increases but remained at levels far below those suggesting rapid growth.
Japan’s PMI fell back to a three-month low, indicating a still-faltering recovery from the effects of the tsunami in March, while the indices in South Korea and Taiwan fell sharply.
Robert Prior-Wandesforde, an Asian economist for Credit Suisse, said: “Unfortunately, there is little to suggest that large parts of Asia remain anything other than highly susceptible to growth developments in the US and Europe.”
The equivalent European indicators were little better and even weaker even than the “flash” estimates published in mid-August, “signalling an end to the manufacturing recovery which began in October 2009”, according to Chris Williamson of Markit, the consultancy that compiles many PMI indices.
The European slowdown spread to the big economies of Germany and France. Economies outside the eurozone were also far from immune, with falls in the PMI readings in Switzerland, Sweden and the UK. The UK PMI fell to 49 in August, as the index for export orders and production crashed to their lowest level since May 2009, heaping global woes onto an already struggling domestic market.
The one bright spot in the global PMIs was the sign that the pricing pressures, both for manufacturers’ purchases and sales, have diminished, reducing the pressure on central banks to tighten monetary policy and potentially opening the way to another expansion of unorthodox measures to stimulate demand.