Global manufacturing slump deepens as trade conflict bites

Global manufacturing slump deepens as trade conflict bites

01/07 - 14:09 - Activity survey hits lowest since 2012 as slowdown spreads across Europe and Asia

The global manufacturing slump deepened in June, with data from round the world illustrating the extent to which the US-China trade conflict is weighing on growth.

A global manufacturing index produced by JPMorgan and IHS Markit fell to its lowest level since 2012 in June, with new orders weakening sharply and business optimism at the lowest level on record. Its monthly reading of 49.4, down from 49.8 in May, indicated a majority of firms reported falling output.

Global markets had rallied on Monday after Donald Trump met Chinese president Xi Jinping at the G20 summit, softening his stance on dealing with China’s technology giant Huawei and reaching an agreement to resume trade talks. But economic data gave a sobering reminder of the damage done by the prolonged stand-off between the world’s two largest economies, and by the recent escalation in trade tensions.

A series of other data releases on Monday captured the dismal performance from manufacturers round the world.

In China, manufacturing suffered a relapse after three months of growth, with the Caixin-Markit purchasing managers’ index slipping below 50.

Eleanor Olcott, economist at the consultancy TS Lombard, said falls in new orders in both this survey and in official data suggested China’s domestic economy was slowing, in addition to the impact of tariffs on the country’s exports.

Other economies in the region are also suffering. South Korea, often seen as a global bellwether, recorded the biggest year-on-year fall in exports for three and a half years in June, according to preliminary data. Meanwhile Japan’s Tankan index for large manufacturers slipped to its lowest level since 2016, reflecting the slowdown in key Asian export markets.

The picture is just as bleak in the eurozone, where a majority of manufacturers in all of the region’s large economies except France reported falling output. In the UK, where the sector’s woes have been compounded by Brexit-related uncertainty, the index of activity produced by IHS Markit sank to its lowest level since 2013.

The US is the only region in which manufacturing activity still appears to be expanding, but even here the trend is worrying: the Institute for Supply Management’s gauge of activity, also published on Monday, pointed to the slowest growth since October 2016, and new orders have weakened.

Although the truce struck at the G20 sparked hope in financial markets, economists see little prospect of a near-term economic rebound.

Holger Schmieding, chief economist at Berenberg, said manufacturing could stabilise as Chinese stimulus “worked its way through the system”, provided there was no further escalation in trade tensions, but added that the G20 deal “is not a circuit breaker”.

“The impact of trade tensions on business confidence is becoming more pronounced,” said Chetan Ahya, chief economist at Morgan Stanley, adding that developments at the G20 summit were not enough to remove the uncertainty around trade policy that was holding back investment.

The worst of the manufacturing slowdown has been in intermediate goods — the most commonly traded cross-border. Consumer goods have been less affected, with demand underpinned by strong employment and a pick-up in wage growth in many developed economies.

“We are not in a recession now because consumption, labour markets, services are holding up — so far it seems concentrated in manufacturing and trade,” said Christian Keller, economist at Barclays.

But some economists fear the downturn in manufacturing could lead to job cuts and so spread to the services sector, which in many countries is still a relative bright spot.

Mr Schmieding said the prospect of a cut in US interest rates, and of further stimulus from the European Central Bank, could support sentiment and boost financial markets, but was unlikely to turn round the manufacturing sector.

Economists at ABN Amro also saw little prospect of a pick-up, despite the positive signals from the G20.

“Much of the damage from the trade war has been done in terms of the sharp fall in business confidence,” they wrote. Businesses were unlikely to feel enough confidence to plan investment given there had been “scant detail on how, if at all, the differences . . . have been bridged”. es un sitio web oficial del Gobierno Argentino