Dark clouds gather over global economy as powerhouse China suffers sharp slowdown
09:01 GMT, 1 June 2012
The global economic forecast looked gloomier today as China's biggest factories registered their weakest month so far this year, with faltering demand at home and abroad.
China's purchasing mangers index (PMI) – measuring output, new order levels and backlogs at largely state-run factories – contracted much more sharply than predicted, from 53.3 to 50.4. Analysts had expected a reading somewhere between 51.5 and 52.
The darkening outlook was underlined
by data showing the fourth monthly decline this year in exports from
South Korea as shipments to the U.S., Europe and China all fell.
Eastern promise: China is the world's second biggest economy and has been the main engine of global growth in recent years
Investors' jitters over the key U.S.
non-farm payrolls report, due today at 1230 GMT, have been rising since a
report yesterday showed U.S. private employers created fewer jobs than
expected last month. Economists forecast non-farm payrolls increased
150,000, up from a paltry 115,000 in April.
China is the world's second biggest
economy and has been the main engine of global growth in recent years.
Now its annual economic growth is expected by analysts to fall to 7.9
per cent in the second quarter, the first dip below 8 per cent since
2009. That could pile pressure on authorities to take policy action to
'What's really worrying is new orders
have started to shrink and inventories have started to build up at an
unusually fast pace,' said Dariusz Kowalczyk, senior economist and
strategist at Credit Agricole CIB in Hong Kong.
'Growth in Q2 is likely to slow,
probably below 7.5 per cent year-on-year. That puts the annual growth
target at risk and the risks continue to increase because the external
environment is weakening.'
Manufacturing surveys from Europe later are not expected to offer much comfort.
as China recording its lowest output since November 2011, a separate HSBC index tracking smaller private sector firms in the country
retreated to 48.4 from 49.3 in April – its seventh straight month below
the 50-mark, with the employment sub-index falling to its lowest level
since March 2009.
The euro fell to a 23-month low against the U.S. dollar after
the data and the Australian dollar, highly sensitive to expectations of
Chinese demand for commodities, hit an eight-month low. Japanese shares
were heading for a ninth straight week of losses, matching its longest
such run in 20 years. China's yuan was little changed, after suffering its biggest monthly drop on record in May.
It adds to concerns facing fellow
Asian industrial powerhouse South Korea, which has seen Europe's
wrenching debt crisis sap demand for its exports. Its exports fell 0.4
per cent in May from a year ago, but that was with demand in the Middle
East and Latin America offsetting sharp falls elsewhere.
'Given the prevailing view that the
eurozone fiscal crisis won't be solved in the short term, we are
concerned that exports to China will remain weak for some time,' Deputy
Trade Minister Han Jin-hyun said at a briefing after the data was
The weak export data prompted
investment banks to warn that the South Korean government's forecast of
3.7 per cent economic growth this year looked to be overly optimistic.
India's manufacturing sector held up
better, with a survey showing factories kept up a steady rate of
expansion in May, with fast-rising output evened out by slowing growth
of domestic order books.
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