Around the economic world in a few minutes
A post to update you on what is happening, economically around the world.
Manufacturing activity in China and across a wide swath of Asia slowed in May, heightening fears that the turmoil in Western economies is dragging down one of the few remaining engines of global growth.
Two purchasing managers indexes for China fell in May, briefly rattling investors Friday and stoking speculation Beijing may have to respond aggressively to support growth. Indonesia posted its first trade deficit in nearly two years, and South Korea’s exports, considered a bellwether for Asia, unexpectedly fell for a third straight month.
"The green shoots of recovery that we were seeing a month or so back are wilting away," said Rob Subbaraman, chief Asia economist at Nomura Securities. "The crisis in Europe is one reason; the other one is the China slowdown. But I think less appreciated is that the height of uncertainty about the outlook has caused Asian firms and multinationals in Asia to pause in their investments, and I think that’s the bigger factor right now."
China’s official PMI, based on government data, showed manufacturing continuing to grow but by the barest of margins, falling to 50.4 in May from 53.3 in April. A figure above 50 indicates expansion. An index produced by HSBC and Markit showed Chinese manufacturing was worse, falling to 48.4 in May from 49.3 a month earlier.
"We feel that in China a very powerful stimulus"—combining fiscal outlays and cuts to banks’ reserve requirement ratio—"is required to arrest the slowdown in growth," said Frederic Neumann, co-head of Asian economic research for HSBC. "These numbers today suggest this is coming sooner rather than later. If that stimulus is not delivered, then China is indeed looking at a hard landing."
Both the US’s non-recovery recovery and the Eurozone crisis are being blamed for this slowdown.
The economies of Asia, both the emerging markets and the more developed countries, are being hit by a double whammy of slowing domestic growth and the impact of the European debt crisis on Asian exports and finance.
Signs of distress are proliferating.
In India, the government reported Thursday growth in the first three months of the year at the slowest pace in the past nine years—up 5.3% from the year-earlier quarter, well below the 8% pace of recent years. "A gasping elephant," said Leif Lybecker Eskesen, HSBC’s chief India economist, in a note to investors.
In China Friday, an official gauge of manufacturing activity fell to a lower than expected level, which is likely to add to market concerns about China’s slowdown. China’s official Purchasing Managers Index fell to 50.4 in May, compared with 53.3 in April and lower than the median forecast of 51.5. A reading below 50 indicates contraction. The Ministry of Commerce, meanwhile, is blaming "worse-than-expected" economic performance in Europe for disappointing export data.
Early Friday, South Korea said its exports unexpectedly contracted for a third consecutive month in May compared with a year earlier. South Korea is the first country in Asia to release trade data for the month and is often a harbinger of regional trends.
Meanwhile in Europe, the UK’s manufacturing is reported as slumping with activity dropping to its lowest level in three years. The Eurozone jobless rate stands at 11%. Additionally the Eurozone crisis is now beginning to effect countries with close proximity and ties which are not a part of the Euro:
The euro zone’s deepening fiscal crisis continued to take its toll on some of the neighboring economies of central and eastern Europe in May, as surveys released Friday indicated manufacturing activity contracted again in May.
The countries in Europe’s center and east have close trade and financial ties with the euro zone, and some have seen demand for their exports weaken as the currency area’s economy has stalled, while western Europe banks have cut their lending to the region.
A double whammy. And, finally, within the Eurozone itself, companies are trying to prepare for the Greek withdrawal from the zone (and possibly Spain’s as well):
As European officials race to quell fears that Greece may exit the euro, many companies doing business in the troubled country are preparing for the worst.
Most executives, analysts and others agree on one thing: the impact of a Greek withdrawal from the euro zone is impossible to predict. That’s why multinational companies are rehearsing for any number of contingencies. They range from a paralysis in cross-border payments to a civil breakdown in Greece to a broader breakup of Europe’s common currency.
Retrieving their cash is among the companies’ gravest concerns. If Greece were to revert to its former currency, many companies fear that any euros left there would be converted into less-valuable drachmas. Should that happen, Greece is widely expected to impose capital controls to keep the remaining cash in the country.
Can you say “completely mess?”
Meanwhile, here, the business climate remains unsettled, hiring still isn’t showing any real turnaround and the economy continues to bang along the bottom (one assumes, it could drop again if the Euro crisis explodes) with no real trend upward.