Global economy remains fragile as China, U.S. manufacturing sectors slump
The global economy finished last year on a fragile footing, with factory activity in China shrinking for the 10th month running in December, while euro zone manufacturing picked up but U.S. activity slowed.
Coming on a day of volatility in Asian stock markets after China’s central bank fixed the yuan at a 4-1/2 year low, the data point to sluggish economic growth and inflation globally to start the new year.
Mainland Chinese shares sank over 7.0 percent on the lower yuan fixing and shrinking factory activity.
European stock markets fell too, though the declines were less sharp as investors took note of the brighter data from the euro zone. At midsession, U.S. stocks were down nearly 3.0 percent, the biggest one day fall in more than three months.
CHINA FACTORY ACTIVITY CONTRACTS
The Caixin/Markit China Manufacturing Purchasing Managers’ Index (PMI) slipped to 48.2, below a Reuters poll consensus of 49.0 and down from 48.6 in November.
That was the lowest since September and well below the 50-point level that separates contraction from expansion. It followed a fractional increase in the official PMI to 49.7.
The PMIs in South Korea and Taiwan edged above the 50 mark, though more thanks to a pick-up in domestic demand than any revival in exports.
Weighed down by weak demand at home and abroad, factory overcapacity and cooling investment, China will likely post its weakest economic growth in 25 years in 2015, with the rate of expansion slipping to around 7.0 percent from 7.3 percent in 2014.
Growth is forecast to slow to 6.5 percent this year and next, according to the latest Reuters poll.
The drag from industry comes as China makes gradual progress in its transformation to a more service-driven economy. An official survey on the services sector showed activity quickened in December, with its main index rising to 54.4, from 53.6 in November.
China has room to ease reserve requirements for banks and loosen government purse strings. It has also been steadily nudging its currency lower.
