LONDON: The world’s economic outlook darkened on Friday as reports showed US employment growth slowing sharply, Chinese factory
output barely growing and European manufacturing falling deeper into malaise. In a shock that sent global equity markets into a dive, the US economy added just 69,000 jobs in May, less than half what analysts expected and well below what is seen as needed to keep the jobless rate moving lower. The unemployment rate rose for the first time in almost a year, to 8.2 per cent.
The Labour Department report dealt a blow to confidence in the US economic recovery, which until recently had contrasted with
Europe’s deteriorating economic situation and seemingly intractable political crisis. “The negative employment data caps the recent deterioration in global economic data. From China to Europe to the US, all the data have shown real slowing,” said John Kilduff, partner at Again Capital LLC, New York.
Worsening economic conditions were also being felt in major emerging countries such as Brazil and India, causing some economists to wonder just where growth is going to come from.
“The global economy downshifted sharply in May, and judging by these data, the US followed suit,” said Michelle Girard, economist at RBS. US stocks fell sharply as the employment numbers compounded worries about upcoming elections in Greece and banking troubles in Spain, pushing the Dow Jones industrial average down over two per cent on the day, and negative for the year. Treasury bond yields, in contrast, continued to hit record lows across the board as investors scurried for safety.
In Britain, manufacturing activity shrank at its fastest pace in three years last month as the global economic slowdown hit demand for its goods.
Markit’s Euro Zone Manufacturing Purchasing Managers’ Index (PMI) dropped to 45.1 in May from 45.9 in April. Similarly, the output index fell to 44.6 from April’s 46.1, also the lowest since June 2009.
US manufacturing proved a bit more resilient, with the Institute for Supply Management’s Index falling modestly in May but still at a respectable level of 53.5. New orders also rose to their highest since April of 2011.
Core consternation Earlier data from France and Germany, Europe’s largest economy, showed their manufacturing sectors contracted at the fastest pace in nearly three years. It was only German strength that had prevented the Euro Zone falling into recession in the first quarter. Italy’s factories contracted for the 10th straight month, while in Spain the PMI fell below that of Greece, and posted lowest reading of all the countries surveyed.
The UK economy is mired in its second recession in two years and its PMI plunged to 45.9 last month, its lowest reading since May 2009 and the second-steepest fall in the survey’s 20-year history.
The Euro Zone’s economic
deterioration prompted more than a third of economists polled by Reuters this week to say the
European Central Bank will cut interest rates from their record one per cent low before the end
of the year to boost growth.
“Fundamentals certainly justify a rate cut any time soon. However, the ECB might keep some powder dry at next week’s meeting and wait for the outcome of the Greek elections — and future of the monetary union — to change its policy stance,” said Annalisa Piazza at Newedge.
Greece, which unleashed the financial maelstrom that has ravaged the bloc, is due for a crucial second election on June 17 that may determine whether it remains a member of the currency union.
BRICS take a hit
Declines in two gauges of
China’s manufacturing sector were particularly worrying for
investors looking to the world’s second-biggest economy to pick up the slack created by Europe’s debt crisis and sluggish US economy.
China’s annual economic growth is expected by analysts to fall to 7.9 per cent in the second quarter, the first dip below eight per cent since 2009. That could pile pressure on authorities to attempt further stimulus. The country’s
official PMI fell more than expected to 50.4 in May, the weakest
reading this year and down from April’s 13-month high, with output at its lowest since November 2011.
India was also feeling the
pain. Growth in its gross domestic product slumped in the first quarter to a nine-year low of 5.3 per cent as the manufacturing
Brazil’s economy barely expanded in the first quarter, setting the stage for another disappointing year and casting new doubt on
the health of emerging markets.
The economy grew just 0.2 per cent compared to the final three months of 2011, less than half the pace economists expected.