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Manufacturing data stokes fears of global spring turning cold

Last updated on: April 24, 2013 09:28 IST
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Growth in Chinese factories slowed to a crawl as export demand dwindled, while Germany saw business activity decline for the first time in five months.

Major economies in North America, Europe and Asia lost some momentum this month, a clutch of business surveys showed on Tuesday, raising concerns about the strength of the global recovery.

China and Germany, the world's biggest exporters, both lost a step in April. Growth in Chinese factories slowed to a crawl as export demand dwindled, while the Euro zone's largest economy saw business activity decline for the first time in five months.

US manufacturing grew at its most sluggish pace in six months as domestic demand dried up, suggesting the world's biggest economy started to lose ground in the second quarter.

The US data "will obviously add significantly to concerns, most recently related to the softer China and German data, that another seasonal slowdown in the global economy is taking hold," said Alan Ruskin, Deutsche Bank's head of G10 currency strategy.

More than three years after the global recession, sluggish activity in rich and poor countries has confounded policymakers who have tried mightily to kick-start growth.

The International Monetary Fund this month trimmed its global growth forecast to 3.3 per cent, leaving it on par with the 3.2 per cent rate recorded in 2012.

Slower global growth and falling commodity prices are likely to quash inflation fears and speculation that the Federal Reserve will start tapering its $85 billion monthly asset purchases any time soon.

But policymakers are also scrambling for new ideas. Finance officials from the world's biggest economies have started to edge away from a drive to revive growth through large cuts to bloated budget deficits, an unpopular policy that European Commission President Jose Manuel Barroso said had reached its limits.

Governments in many the Euro zone's peripheral countries with high debt burdens and slow growth, have prescribed the bitter medicine of steep budget cuts and higher taxes to shore up public finances, but that has made it harder to grow and unemployment has risen.

April data showed even Germany, among the healthiest of Europe's economies, was feeling the pinch. Financial data firm Markit said its preliminary services PMI for Germany, measuring growth in companies ranging from hotels to banks, fell to 49.2 in April from 50.9 the previous month.

The unexpected decline in German activity also adds a new dimension to next week's European Central Bank policy meeting.

"With Germany unable to offset the austerity and credit crunch drag on growth in the (weaker euro zone states), and with excess capacity growing and business expectations falling, the only question is why the European Central Bank has not cut rates already," said Lena Komileva, director of G+ Economics.

The survey was worse than even the most pessimistic forecast in a Reuters poll of economists.

"Whereas we'd seen evidence that the economy had bounced back quite nicely in the first quarter ... there are suggestions that we could see a renewed downturn in the second quarter," said Chris Williamson, chief economist at compiler Markit.

France though might have passed the nadir of its own economic troubles, the PMIs suggested, which helped the broader Euro zone composite survey hold steady in April at 46.5.

But while on one hand showing the Euro zone's recession is not worsening, the dire tone of the German PMIs means that might not be the case in the coming months.

"It is statistically neutral, but not in economics terms," said Komileva at G+ Economics of the euro zone PMIs.

The US economy may be facing a similar loss of momentum. While the government is expected to report first-quarter gross domestic product growth of around 3.0 per cent on Friday, the manufacturing slump in April suggests "the picture looks to have already began to darken again, with growth set to weaken in the second quarter," Williamson said

Williamson chalked up the decline in Markit's preliminary US PMI to 52.0 from 54.6 partly to the impact of higher taxes and spending cuts by households, businesses and government.

Exports wilt

Worries about sluggish global growth were illustrated by purchasing managers indexes from Asia.

The flash HSBC Purchasing Managers' Index for China in April fell to 50.5 in April from 51.6 in March but was still stronger than February's reading of 50.4.

The figures followed an unexpected contraction in export orders in March to Taiwan, one of the region's biggest providers of technology gadgets, signalling that Asia's trade-reliant economies may be losing further momentum.

"This release was more in line with the official PMI headlines in previous months, painting a picture of a painfully slow recovery in China's manufacturing sector," said Societe Generale economist Wei Yao in Hong Kong.

The official PMI is due on May 1.

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