LONDON/HONG KONG: Factory activity was at its weakest in years across much of the world during January, adding to worries trade tariffs, political uncertainty and cooling demand poses an increasing threat to global growth.
Weak Purchasing Managers Index (PMI) readings reinforce expectations central banks will put any further interest rate hikes on hold this year and fuel expectations a global economic slowdown is under way, as highlighted in a Reuters poll last month..
Trade-focused Asia appears to be suffering the most visible loss of momentum so far, with activity shrinking in China, although European economies are stuck in low gear and many emerging markets are sputtering.
The euro zone has been rocked by protests in France, an auto sector struggling to regain momentum, political strife and rising trade protectionism. Manufacturing growth in the bloc was minimal last month, at a four-year low, and forward looking indicators suggest there will be no turnaround soon.
Germany’s manufacturing sector contracted for the first time in more than four years as Europe’s powerhouse was hit by trade tensions although activity in France rebounded, helped by jobs growth.
Last week, the International Monetary Fund cut its world growth forecasts for this year and next and said failure to resolve protectionism could further destabilise the slowing global economy.
On Wednesday, the US Federal Reserve signalled its three-year-drive to tighten monetary policy may be at an end amid a suddenly cloudy outlook for the US economy.
In some countries there is even chatter about potential rate cuts.
Beijing is under pressure to come up with more stimulus measures and find common ground with the United States to prevent their trade war from escalating.
China’s factory activity shrank the most in almost three years in January as new orders slumped further and output fell, the private Caixin/Markit PMI survey showed. The numbers were weaker than Thursday’s official PMI survey, but both suggested the economy is continuing to slow.
However, veteran China watchers typically advise taking its data early in the year with a pinch of salt, suspecting the trends may be distorted by the timing of the Lunar New Year holidays.
Many firms scale back operations or close for long periods around the holidays, which begin on February 4 this year. Still, workers, business owners and labour activists have said companies are shutting earlier than usual as the trade war bites, with some likely to close for good.
Spreading beyond manufacturing, the global impact of China’s slowdown means cost-conscious Chinese tourists will chose destinations closer to home for the week off, rather than more expensive trips further afield.
Japan’s factory activity was the slowest in 29 months, with weakening exports and output suggesting it could soon fall into contraction. Manufacturers in the world’s No 3 economy are facing both falling exports and a likely slump in domestic demand when the country’s sales tax is hiked in October. — Reuters
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