Nick Beams
There are increasing signs the world economy has entered a period of much slower growth and could be heading for a recession, including in the US, as the trade war against China intensifies and the Trump administration prepares attacks on other targets.
Earlier this week, a key indicator of British manufacturing activity contracted in August for the fourth consecutive month to reach its lowest level in seven years. The IHS Markit purchasing managers’ index (PMI) dropped to 47.4 from 48 in July. A rise to 48.4 had been predicted, with a reading of less than 50 indicating more executives believe their economic activity is contracting rather than expanding.
IHS director Rob Dobson said high levels of political uncertainty—a reference to the Brexit turmoil—together with ongoing global trade tensions had “stifled the performance of UK manufacturers.”
“Companies scaled back production in response to the steepest drop in new order intakes since mid-2012,” he said.
The British economy contracted by 0.2 percent in the second quarter compared with the previous three months, and a further contraction in the current quarter would see it officially in a recession. Dobson said the latest PMI data was “consistent with a quarterly pace of contraction close to 2 percent.”
While the British economy is being adversely affected by the Brexit upheaval, the economic outlook is little better in the European Union. The export-dependent German economy, the world’s fourth largest and the euro zone’s main driving force, contracted 0.1 percent in the second quarter and the central bank has warned that a recession is likely.
German retail sales fell further than expected in July. The Ifo Business Climate survey of German executives fell from 95.8 top 94.3 in August, the fifth straight month of falling sentiment.
Clemens Fuest, the president of the Ifo Institute, which conducts the survey, said: “There are more indications of a recession in Germany. The last time that industrial companies demonstrated such pessimism was in the crisis year of 2009. Not a single ray of light was to be seen in any of Germany’s key industries.”
Surveying the results of PMI data from around the world, the Wall Street Journal reported this week that global industrial production had fallen in the three months to June, and August surveys “point to weak inflows of new orders that suggest a significant rebound in output is unlikely in coming months.”
The article noted that in a number of Asian countries, “surveys pointed to a decline in activity that mirrored that felt in Europe. The PMIs for Japan, Taiwan, South Korea and Indonesia were below 50.”
Economies in the Asia-Pacific region are being heavily impacted by the US-China trade war. South Korea has reported that its exports to China fell by 21.3 percent in August compared to the same month last year. Total exports have dropped by 13.6 percent compared to the same period a year ago.
In Japan, capital spending by manufacturing companies dropped by 6.9 percent in the June quarter, the first decline in two years, largely as a result of a significant decline in exports to China.
NLI Research Institute analyst Taro Saito told the Wall Street Journal: “Given there is no sign of recovery in Japan’s exports due to the US-China friction, the downtrend in manufacturers’ profits and capital expenditures is expected to continue.”
The Hong Kong economy is also experiencing its worst downturn since the global financial crisis of 2008–2009, as a result of the US-China trade war and the mass protests of the past three months.
The PMI for the territory fell to 40.8 in August, down from 43.8 percent the previous month, going even further below the level of 50 marking the border between expansion and contraction.
The Hong Kong administration has downgraded its growth forecast for the next year to between zero and 1 percent from its previous prediction of 2–3 percent.
Figures released yesterday on the Australian economy show that in the last quarter it grew at its slowest pace since the global financial crisis. Gross domestic product grew by only 1.4 percent compared with the same period last year, despite a major boost in exports which saw the country reach its first current account surplus since 1975.
The growth rate in household consumption spending, which makes up 60 percent of the economy, fell to 1.4 percent in the June quarter, down from 1.8 percent for the previous three months.
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