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World manufacturing downturn dents hopes for growth rebound

posted onSeptember 4, 2019

Manufacturing activity slowed across the world last month as the trade war between the United States and China worsened and Brexit uncertainty left their mark on factory output.

In a fresh escalation of the trade spat, Washington began imposing 15% tariffs on a variety of Chinese goods over the weekend. Beijing reciprocated with new duties on U.S. crude oil. 

Trade tensions take their toll on commerce, dent business sentiment and hopes the world economy might be turning the corner on its slowdown. 

USA manufact

(Graph Data Source: US Institute for Supply Management)

The U.S. manufacturing  sector shrank for the first time in three years last month, a report from the Institute for Supply Management  (ISM) showed on Tuesday (Sept. 3). The ISM said its purchasing managers index (PMI) fell to 49.1 in August after dipping to 51.2 in July. Economists had expected the index to edge down to 51.0.

 A figure below 50 indicates the sector is contracting. The PMI dropped below 50 for the first time since August of 2016 and hit its lowest level since January of 2016. The August contraction ended a 35-month expansion period where the PMI averaged 56.5%, according to the ISM  The report which showed slowing manufacturing growth in the world's largest economy raised fears of a recession.

UK manufacturing

In the UK, factories suffered their worst slump since 2012 in August, a closely-watched survey from IHS Markit/CIPS has suggested as the ongoing Brexit drama and a global economic slowdown hit demand.

UK manufacturers were stifled by "high levels of economic and political uncertainty alongside ongoing global trade tensions”, Markit noted. 

Some EU-based clients were reported to reroute supply chains away from the UK, 
because of fears of a no-deal Brexit. Meanwhile the weak pound drove up import costs. 

The purchasing managers’ index in August fell to 47.4 from 48 in July, far below forecasts and indicating the fourth successive monthly deterioration of business conditions, in a sign that the damage being done by political uncertainty is even worse than feared.

Eurozone manufacturing

European manufacturing also contracted in August, Markit has reported. The factory sector in the 19-country euro zone has shrunk for seven months in a row.

Eurozone manufacturing PMI was 47.0 in August dragged back by a stark slump in factory output in Germany.

Euro zone's export-reliant powerhouse was revised slightly lower to 43.5, well below 50. Spain (48.8) and Italy (48.7) also suffered falling output while Ireland even fell to 76-month low (48.6.) The picture brightened in France (51.1), the Netherlands (51.6) and Greece (54.9) 

“Euro zone producers are suffering as the summer slump in factory production persisted into August. A marked deterioration in optimism about the year ahead suggests companies are expecting worse to come,” noted Chris Williamson, chief business economist at IHS Markit. 

Meanwhile, business confidence has fallen to its lowest level since 2012 -- suggesting more pain ahead.

Manufacturing downturn

ASIA/ world
In Japan, the world's third-largest economy, manufacturing activity fell for a fourth straight month, while South Korea and Taiwan also saw factory activity shrink as global trade tensions continue to be among the main culprits behind the gloom. 

India, where economic growth hit a 6-year low in April-June, also saw the slowest expansion in its manufacturing sector in 15 months as demand and output grew at their weakest pace in a year, underlining a darkening outlook for the Asian economic powerhouse.

In a surprise development, China's factory activity expanded as output edged up, a private sector PMI showed, although orders remained weak and business confidence faltered. 

The JPMorgan Global Manufacturing PMI, compiled by IHS Markit, rose marginally from 49.3 in July to 49.5 in August, but remained below the 50.0 no-change level to thereby signal a fourth consecutive monthly deterioration of business conditions. The current downturn is the longest and deepest since 2012. 

Since the start of 2018, the two economic superpowers have imposed tariffs on billions of dollars worth of one another’s goods, battering financial markets and souring business and consumer sentiment. It's becoming increasingly clear that in a trade war  there can be no winner and everyone, not just the US and China, loses.