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New Data From China and Europe Fan Economic Fears

Fresh economic figures from Europe and China added to mounting concerns that weakening growth at the end of 2018 will carry over into a sharper slowdown next year, as the yearslong global expansion matures, trade tensions bite and consumers rein in spending.

China reported weak industrial production and retail data on Friday, while a key business index in Europe sank to its lowest level in more than four years due to violent protests in France and weak manufacturing activity in Germany. Global stock markets and the euro fell on investor concern, in line with recent steep swings in markets, even as the U.S. economy has been relatively steady.

In China, numbers showed that the country’s economic downturn deepened last month, hitting industry and consumers and raising the challenge for Beijing to arrest the slowdown while fending off a trade conflict with the U.S.

Industrial production, weighed down by woes in the car and property markets, slowed in November to its slackest point since early 2016, official data showed. Growth in retail sales dropped to its lowest level in more than 15 years.

In Europe, surveys of purchasing managers suggest any end-of-year rebound will likely be modest, leaving uncertain prospects for 2019. The composite purchasing managers index for the eurozone as a whole fell to 51.3 from 52.7 in November. Monthlong antigovernment protests in France led to the first decline in business activity there in 2 1/2 years.

Problems in France come as Italy hovers on the brink of recession, and Germany struggles to rebound from a third-quarter contraction. It also suggests the European Central Bank may be too optimistic about the eurozone’s economic outlook, despite cuts it made to growth forecasts Thursday.

“Even if France’s PMI bounces back as the effects of the protests fade, the eurozone economy has clearly shifted down a gear,” said Jack Allen, an economist at Capital Economics.

The U.S. economy remained on a solid footing, though it is cooling a bit in some respects and appears vulnerable to a global slowdown. The holiday shopping season started strong, but manufacturing activity flattened in November, according to new data. The job market remains tight, but business investment has slowed.

In China, economists had expected things to be slightly better last month due to government efforts to support growth by cutting taxes and jump-starting infrastructure projects. Investment did grow a tick higher.

“A downward cycle hasn’t finished yet, and we’ll probably see more weakness in the first half of the year,” said Shuang Ding, an economist at Standard Chartered. He said sluggish demand likely caused factories to curb production.

Value-added industrial output in China rose 5.4% in November from a year earlier, slowing from a 5.9% on-year increase in October, defying expectations of a boost from the government’s decision to scale back production restrictions intended to ease pollution.

Weakness was seen across the industrial sector. Automobile production shrank 3.2% last month from a year earlier. Retail sales rose 8.1% in November from a year earlier, slowing from an 8.6% year-over-year gain in October.

Statistics bureau spokesman Mao Shengyong said downward pressure on growth remains strong, especially given the weaker demand for Chinese exports and the trade frictions with the U.S.

Despite the 90-day tariff truce that President Trump and Mr. Xi reached in early December, market confidence remains fragile, and many economists expect the trade conflict to continue.

China said Friday it would scrap punitive tariffs on U.S.-made vehicles and auto parts, though only as a temporary measure while trade negotiations take place.

The slowdown could press policy makers around the world to respond. Central bank Governor Yi Gang said Thursday that China needs “relatively loose” monetary conditions to counter an economic downturn, though he said that could affect the yuan’s value, according to a transcript posted on Chinese news portal Sina.com.

The overall picture leaves the U.S. Federal Reserve on track to raise short-term interest rates at its meeting next week, while leaving uncertain how much more and how fast it will lift borrowing costs in the coming year.

Maurice Obstfeld, the retiring chief economist of the International Monetary Fund, said earlier this month the U.S. will likely feel a drag from the global downdraft.

“The slowdown outside the U.S., to the extent we’re seeing signs of that, seems to be more dramatic,” than earlier forecast, Mr. Obstfeld said in an interview with reporters. “For the rest of the world there seems to be some air coming out of the balloon and that, I think, will come back and also affect the U.S.,” he said.

In Europe, the euro fell 0.6% against the U.S. dollar after the release of the PMIs and on fresh doubts that the ECB will meet investor expectations with a first raise in interest rates late next year.

While the contraction in French business may prove temporary, the greater worry is Germany, where the PMI fell to its lowest level in four years.

Economists had expected a rebound in German growth during the final three months of the year as the automobile industry recovered from a third-quarter slump caused by delays in testing model types for compliance with new emissions standards. The eurozone economy experienced its weakest quarter of growth since early 2013 during the third quarter.

On Thursday, the ECB made its third straight cut in quarterly forecasts and Friday’s figures suggest it may not be their last.

“Everything, all this when we look at all these drivers of the recovery, yes, it’s true, it’s just weaker,” said ECB President Mario Draghi. “It’s not just one-off; it’s been weaker for a while now.”
Source: Dow Jones

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