Tue, Oct 04, 2011 - Page 10 News List

Factory activity last month fell to crisis-era lows

GLOOMY:The eurozone manufacturing contraction deepened last month as new orders shrank. Even China saw a below-average rise ahead of Golden Week

Reuters, LONDON

Factory activity in Europe and Asia slumped last month to levels not seen since the depths of the financial crisis as export demand dropped, surveys showed yesterday, reinforcing fears of a return to recession.

Corresponding figures for the US due later yesterday were expected to underscore the gloomy outlook for the global economy.

The eurozone’s manufacturing contraction deepened last month as new orders shrank at their fastest pace since the middle of 2009. Although Europe’s leaders have so far managed to prevent the eurozone debt crisis triggering a financial catastrophe, data points to worsening economic fortunes across the bloc.

Even in China, which reported a slight uptick in its official purchasing managers’ index (PMI), economists saw evidence of a cool-down. China’s factory activity typically rises in September as businesses prepare for the Golden Week holiday, but this year’s increase was smaller than the average.

“There was no reason to be cheerful, as this was in fact the weakest September reading ever and was on tie with that in 2008,” Societe Generale’s Yao Wei (姚煒) said.

Markit’s eurozone PMI, which gauges changes in the activity of thousands of factories in the countries that share the euro, fell to a final reading of 48.5 last month from 49.0 in August.

It is the second consecutive month the manufacturing PMI has been below the 50 mark that divides contraction from growth.

“In a nutshell, the recession in the eurozone periphery’s manufacturing activity is weighing on the overall euro zone index that— in September — suggests that the economy is not growing in Q3,” Annalisa Piazza at Newedge said.

Factory activity in Spain, struggling under harsh austerity measures like much of the euro zone periphery, fell at the fastest pace in more than two years, surveys showed on Monday.

French manufacturers, meanwhile, saw activity decline for the second month in a row. Even in Germany, the eurozone’s biggest economy, manufacturing growth effectively came to a standstill.

However, British manufacturing unexpectedly grew for the first time in three months, although a slide in new export orders highlighted the dangers facing the sluggish recovery.

The HSBC PMI for China’s services sector rose to 53 last month, up from an all-time low of 50.6 in August, lifted by new orders.

India’s manufacturing output recorded its biggest monthly decline since late 2008, going from robust growth to near stall speed in just five months and a fall in the new orders index for the sixth straight month suggested more weakness ahead.

Asia’s export orders have fallen since midsummer as the eurozone crisis intensified and the US economy slowed. So far, the data points to a moderate slowdown in China and elsewhere in Asia, but another US or European recession would change the equation.

“A recession in the global economy could cause a China hard landing,” Barclays Capital economists wrote in a note to clients, adding that this was not their baseline forecast.

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