China’s factory sector struggled to gain speed last month, while Japanese inflation went backward in August, despite the best efforts of policymakers, underscoring the limits of stimulus in reviving world growth.
Yesterday’s unflattering figures bookended a week in which the IMF warned it would likely downgrade forecasts for the US economy and the WTO slashed its outlook for global trade flows.
That was unwelcome news for markets spooked by troubles at Deutsche Bank AG, whose US shares took a hammering on reports some hedge funds had reduced financial exposure to Germany’s largest lender.
There was at least some evidence that China, the world’s second-largest economy, had stabilized, if only because of a burst of government spending and a red-hot housing market.
The Caixin Media Company Ltd (財新傳媒) China purchasing managers’ index (PMI) edged up one-tenth of a percentage point to 50.1, led by output and new orders.
While the move was marginal, it was only the second time the index had reached positive territory since February last year.
“This suggests that the positive momentum seen in the activity and inflation data over the past few months will likely be sustained,” HSBC Greater China economist Julia Wang (王然) said.
Wang said that she expected growth to remain supported by fiscal expansion in the second half of this year, while overall monetary policy would likely remain accommodative.
The US economy also looked to have bounced back in the third quarter, while a string of data showed Europe weathered Britain’s Brexit vote better than many had feared.
All of which encouraged Barclays PLC to nudge up its call for global growth to 3.5 percent next year, from an expected 3.1 percent this year.
Yet, a true lift-off still seems remote.
“Given the modest acceleration in growth that we forecast and the many downside risks around these forecasts, it seems overly optimistic to suggest that the global economy has reached ‘escape velocity,’” Barclays economist David Fernandez said.
His list of headwinds included a miserly pace of global business investment, lackluster productivity, sluggish wage growth and too-low inflation.
“Although these trends do not seem to be worsening, there are few signs — despite tremendous policy efforts — of any meaningful turnaround,” Fernandez said.
The limits of policy stimulus were all too evident in Japan, where core consumer prices fell 0.5 percent in August from the same period last year, the largest drop since March 2013.
The data seemed to mock the Bank of Japan’s recent pledge to not only boost inflation to 2 percent, but to lift it above that, so far unreachable, for a sustained period.
Nor were Japanese consumers cooperating. Household spending sank 4.6 percent in the year to August, almost twice the fall expected by analysts.
Indeed, yesterday’s data across Asia were littered with unwanted milestones.
In tech bellwether South Korea, factory output suffered the steepest decline in 19 months in August, as strikes stalled auto production.
Things were no better last month, with the Nikkei/Markit PMI reading falling to a 14-month trough at 47.6, as new export orders hit their lowest since the middle of 2013.
Malaysia’s version of the PMI contracted last month for the 18th straight month, as new export orders dropped at the fastest pace in three months.
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