Chinese manufacturing slumped for a fifth month in March and the euro zone economy is showing new signs of wilting, according to surveys on Thursday that pointed to weakening global demand.
Investors were unnerved by the reports, selling riskier assets such as stocks. The HSBC flash purchasing managers index, the earliest indicator of China’s industrial activity, fell back to 48.1 from February’s four-month high of 49.6, firmly below the 50 mark that divides contraction and growth.
On Thursday’s batch of purchasing managers indexes (PMIs) suggested China and Europe will not contribute to a global upturn anytime soon, with only the United States showing momentum at the moment among the world’s top economies.
Factory activity in China shrank for a fifth straight month in March, hit by declining order books and disappointing exports. That partly reflects the weakness of economies in Europe, China’s single biggest export partner. The PMIs pointed to a worsening of the euro zone economy with recession there now looking unavoidable. Investors immediately hedged exposures to trades betting on a rebound in global growth.
Europe flags again
Markit’s Eurozone Composite PMI declined unexpectedly to 48.7 in March from 49.3 in February, a full point below the economists’ consensus of 49.7 and capping the first quarter of the year in disappointing style.
Most worryingly, the surveys suggested business activity in economic heavyweights France and Germany is starting to flag, with job losses mounting across the bloc at the fastest pace since March 2010.
“While we still see a good chance of the recession in the euro zone coming to an end in spring, it seems unreasonable to expect more than an anaemic upward movement in the further course of this year,” said Christoph Weil, economist at Commerzbank in Frankfurt, in a research note.
PMI compiler Markit said the surveys were consistent with a decline of 0.1 per cent in euro zone gross domestic product during the first quarter, following on from the 0.3 per cent decline seen in the last three months of 2012.
With France and Germany now struggling, Markit said it was hard to see what could drive the currency union forward in the months ahead, especially since many of its smaller countries are already mired in recession.
“The austerity measures implemented there are going to keep some major economies such as Italy and Spain in recession, which is going to damage the region as a whole,” said Chris Williamson, chief economist at Markit.
By contrast, Britain should at least avoid a recession, but hopes the UK economy will pick up momentum were dealt a blow on Thursday with news that retail sales suffered their biggest monthly fall in nine months in February.
