Bloomberg News

Europe, China Manufacturing Drops on Impact of Crisis: Economy

December 01, 2011

(For more on the region’s debt crisis, click EXT4.)

Dec. 1 (Bloomberg) -- Manufacturing weakened from China to Europe last month as the euro region’s debt crisis darkened the outlook for the global economy.

China’s manufacturing contracted in November for the first time since February 2009 as the property market cooled and Europe’s turmoil cut export demand. In Britain and the 17-nation euro area, manufacturing shrank at the fastest pace in about 2 1/2 years as the region edged toward recession.

This is “more evidence that the global economic recovery is running out of steam,” said Jonathan Loynes, chief European economist at Capital Economics Ltd. in London. “It’s clear that manufacturing across a range of countries is being affected by a renewed slowdown in global trade.”

Manufacturers are suffering as the global economy cools. The Organization for Economic Cooperation and Development said yesterday that trade in merchandise stalled in most major economies in the third quarter. The Paris-based OECD cut growth forecasts for its 34 member states this week to reflect doubts that European monetary union will survive the debt crisis.

While production slows in Asia and Europe, it probably grew in the U.S. in November at the fastest pace in five months, showing factories will keep supporting the economic expansion through the end of the year, economists said before a report today from the Institute for Supply Management.

‘Bumbling Along’

The ISM’s factory index rose to 51.8 last month from 50.8 in October, economists surveyed by Bloomberg News forecast the Tempe, Arizona-based group’s data to show today. Fifty is the dividing line between growth and contraction. Jobless claims fell last week and construction spending increased in October, other data may show.

“The U.S. seems to be bumbling along OK,” Loynes said. “But clearly PMIs and other indicators are pointing to a recession in the euro zone,” he said. “We think it will be much more severe than a near-term technical recession. If the debt crisis escalates over next year or two and we see some form of breakup” of the single-currency area, “the economic effects associated with that will be pretty severe.”

Manufacturing declined across Europe, according to today’s reports. In the U.K., a gauge of factory output, based on a survey by Markit Economics and the Chartered Institute of Purchasing and Supply, fell to 47.6 from 47.8 in October. New orders fell for a fifth month.

‘Mild Recession’

A manufacturing gauge based on a survey of purchasing managers in the euro region fell to 46.4, the lowest since July 2009, according to Markit.

European companies are under increasing pressure to cut costs to protect earnings as faltering global demand erodes exports just as euro-region governments toughen spending cuts. Unemployment rose to 10.3 percent in October, the highest in more than 13 years and manufacturers were the most pessimistic in almost two years last month.

“We now expect a mild recession in first half of 2012 in the euro zone, ahead of a modest pickup in the second part of the year,” Standard & Poor’s chief economist in Europe Jean- Michel Six said today in an e-mailed statement.

“But we stress that the downside risk remains very significant,” he said. “We estimate that our baseline forecast of a mild recession has a 60 percent probability, while a more severe recession has a 40 percent probability.”

Reserve Requirements

Norway’s manufacturing contracted for the first time in almost two years, while Sweden’s slumped for a fourth consecutive month as the export-dependent Nordic countries suffer from falling demand for their products.

In Asia, the Purchasing Managers’ Index for China fell to 49.0 in November from 50.4 in October, according to the China Federation of Logistics and Purchasing. A level above 50 indicates expansion.

China’s central bank last night announced the first cut in banks’ reserve requirements since 2008, moving two hours before the U.S. Federal Reserve led a global effort to ease Europe’s debt crisis. The move will add about 370 billion yuan ($58 billion) to the financial system and more reductions may follow as the government seeks to boost growth, Citigroup Inc. said.

South Korean manufacturing output also contracted last month, according to Markit.

In the Philippines, the central bank kept its benchmark interest rate unchanged at 4.5 percent for a fifth meeting today as persistent inflation prevented the country from joining Indonesia and Thailand in cutting borrowing costs to bolster growth.

“The global outlook has worsened,” said Christoph Weil, a senior economist at Commerzbank AG in Frankfurt. “We don’t see a global recession at the moment, however. Risks have increased with the escalating debt crisis.”

--With assistance from Simone Meier in Zurich, Svenja O’Donnell, Jennifer Ryan and Scott Hamilton in London and Victoria Ruan in Beijing. Editors: Craig Stirling, Andrew Atkinson

To contact the reporter on this story: Patrick Henry in Brussels at phenry8@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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