Bloomberg News

Manufacturing Output May Shrink From China to Europe: Economy

December 15, 2011

(For more on the sovereign-debt crisis, see EXT4.)

Dec. 15 (Bloomberg) -- Manufacturing may contract this month from China to the euro region as global demand slows and Europe’s leaders struggle to contain the worsening debt crisis.

Chinese factory output may decline for a second month in December as Europe’s fiscal woes weigh on exports and home sales slide, preliminary results from a Markit Economics survey indicate. In the euro area, manufacturers may face a fifth straight month of contraction as the region endures its worst quarter for 2 1/2 years, a separate report showed.

Ripples from Europe’s debt turmoil have dented confidence among companies and consumers and hit global demand. The Organization for Economic Cooperation and Development said last month that trade in goods stalled in most major economies in the third quarter and it cut its growth forecast. The slowdown is spilling over into unemployment, with Nokia Siemens Networks announcing last month that it plans to eliminate 17,000 jobs worldwide.

“The near-term outlook is still bleak” in Europe, said Stella Wang, an economist at Nomura International Plc in London. “With the uncertainty about the sovereign debt crisis and slowing momentum of the euro area’s main trading partners, both businesses and consumers look set to continue holding back their investment and consumption decisions going into 2012.”

U.S. Production

U.S. industrial-output may have cooled in November as slowdowns in automobile output and mining overshadowed broader manufacturing strength, economists said before reports today.

Production at factories, mines and utilities increased 0.1 percent after advancing 0.7 percent in October, according to the median of 82 estimates in a Bloomberg News survey. Manufacturing in the New York and Philadelphia regions picked up in December, a sign the industry is weathering slower global growth, a pair of regional reports may also show.

Factory floors are staying busy as a government tax incentive helps sustain business investment and a drop in inventories last quarter drives new orders from purchasing managers. At the same time, cooling growth in Europe may limit shipments from American manufacturers and restrain the industry that’s been a source of strength for the recovery.

In Europe, the euro fell below $1.30 for the first time since Jan. 12 yesterday as investors lost confidence that the region’s leaders would be able to contain the sovereign debt turmoil and preserve the common currency. The OECD said the region’s difficulties have undermined global growth.

The euro traded at $1.3012 as of 12:24 p.m. in London, up 0.2 percent since yesterday. It’s fallen 2.8 percent this week.

European Manufacturing

A gauge of euro-region manufacturing rose to 46.9 in December from 46.4 the previous month, according to London-based Markit Economics. A services index increased to 48.3 from 47.5. While both numbers were higher than economists forecast, they remain below the 50 mark indicating contraction.

Markit economist Chris Williamson said the reports suggest the euro-region economy will contract 0.6 percent in the current quarter. Unicredit Group said that while the economy may shrink, “fears of a deep recession are overdone.”

“We might be seeing the bottom in business surveys,” Marco Valli, chief euro-area economist at Unicredit in Milan, said in an e-mailed note. “This fits very well with the growth picture we have in mind; moderate contraction in the fourth quarter, followed by a gradual recovery starting early next year.”

ECB Outlook

The European Central Bank earlier this month cut its 2012 growth forecast for the 17 countries sharing the common currency to 0.3 percent from 1.3 percent.

Credit Agricole SA, France’s No. 3 bank, said yesterday that it expects to report a loss for 2011. The bank plans to cut 2,350 jobs at its investment and consumer-finance units. Telefonica SA, Spain’s largest telecommunications company, said yesterday it will cut its dividend for the first time in a decade, as rising unemployment and a weakening economy undermine demand in its domestic market.

In Asia, Japan’s largest manufacturers became more pessimistic than economists expected and China reported the first decline in foreign direct investment since 2009 as Europe’s crisis drags down the global economy.

The Tankan large manufacturer index of sentiment fell to minus 4 in December, the Bank of Japan said today in Tokyo, worse than the median estimate for a reading of minus 2 by 24 economists surveyed by Bloomberg News. Investment in China slid 9.8 percent from a year earlier to $8.76 billion, the Ministry of Commerce said.

The preliminary reading of 49 for a China purchasing managers’ index from HSBC Holdings Plc and Markit Economics compares with a final number of 47.7 for November.

“The outlook completely hinges on what happens in Europe,” said Yoshimasa Maruyama, an economist at Itochu Corp. in Tokyo. “If the debt crisis worsens further and spreads to the U.S., that could spark a recession there too and that would mean a recession for Japan as well.”

--With assistance from Alex Kowalski in Washington, Jennifer Ryan in London and Kristian Siedenburg in Vienna. Editors: Fergal O’Brien, 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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