Free Markets, Free People


Around the economic world in a few minutes

A post to update you on what is happening, economically around the world.

In Asia, some not so good signs.  In China, housing prices fell in 100 Chinese cities for the 5th straight month.  Chinese manufacturing has also cooled significantly:

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.

~McQ

Twitter: @McQandO

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20 Responses to Around the economic world in a few minutes

  • Todays jobs numbers…….folks, I believe Obama officially lost the election today.

    • What ?  Don’t you want Four More Years of the puppy-eating Obama-god ?
      This could make for an historic election that will rattle the foundations of every government from DC to the Horn of Africa ..
      a Black President leaving office before he dies

  • If you think the Greece withdraw is messy then wait till Spain gets its divorce papers.

  • Hilda Solis at the Dept.of Labor on CNBC. It appears the OBummer administration deflection is going to be “May is always bad” and “[However many] straight months of job growth!”

    I guess were supposed to forget that these number are seasonally adjusted and never mind that those straight months have been all adjusted downward afterward.

    • They have to say something.
      And to be honest the economy tanking is not exactly making me happy. Yeah, Obama might lose, but my business was just getting back to normal.

  • There are basically two possibilities for why these numbers keep being “unexpected”, and they’re not mutually exclusive.

    #1 is the obvious idea that the political class is attempting to obfuscate their own failures as much as possible. I’ve talked this before; the regular downward adjustments in the “number of new jobs” figures helps them by making the present news rosy and minimizing the impact of the truth when it comes out later. The rubes see CBS Evening News with the good numbers, and then when the numbers are readusted later, it’s either never covered, or as a tagline when the following months too-high numbers are trumpeted.

    #2 is the possibility that we’re simply in such new territory that they could not come up with good numbers even if they were honest.

    For example, we’ve never seen these levels of debt, so calculating the effects of changes in the money supply is far less precise. We’ve never had the magnitude of uncertainty over pending legislation. Will Obamacare actually take effect? How much is that stalling business decisions about growth or restructuring? Sure, we know it has some effect, but how much?

    In such a volatile world, historical figures are not worth nearly as much in calculating present and future economic stats. Almost anything before the 2008 crisis has to be looked on with skepticism as to how well it applies to today. Judgment plays a bigger part, and that causes natural biases to be more easily expressed (which I think is is one of the big reasons we keep seeing adjustments in only one direction – with a wide range of uncertain results to choose from, it’s natural that bureaucrats will choose the numbers that they know their boss wants). 

    Heck, with the high and accelerating changes in technology, it’s not even very practical to define what “work” is!  Am I at work right now? Well, I’m in my home office, but I’m typing a blog comment. However, in ten minutes I’ll be installing a preview of Windows 8 for a presentation next week. An hour later, I’ll check Twitter to see if the promotion for a video course I did is having any effect.

    I couldn’t tell you how many hours I worked last year – I could only give a rough estimate because it’s spread out all over the place and the lines are too fuzzy. Is time spent on a plane flying to see a client “work”? Even if I’m reading a Jeffrey Archer book or watchin an in-flight movie? Is mowing the grass work? Well, that’s where I get some of my best ideas. (Yeah, I know mowing is work of a sort, but is it the sort of work that factors into employment figures?)

    We desperately needed feedback on the effects of government actions, if for nothing else to explain to clueless moderates that leftist programs and goals are delusional. But I think we’re reaching the point on employment data where it’s impossible to get feedback we can rely on.

    • #3 occurs to me–that is that cocooned “brights” continue to hold to dogmatic theory and models.  They really DO keep getting blind-sided by reality “unexpectedly”, because they can’t or won’t adjust.

    • It’s all part of “Hope and Change ..
      Hope springs eternal in the human breast;Man never Is, but always To be blest:The soul, uneasy and confin’d from home,Rests and expatiates in a life to come.BurmaShave

    • Another sobering thought is that no matter what we did after the crisis, the economy could just be this bad or only marginally better.
      The smartest response to the crisis would have been massive reforms and deregulation, as that would affect government outlays the least while allowing private sector growth. Too bad the Dems hate that, and in fact, the GOP probably won’t do much either.

      • Deregulation, entitlement reform, more openness in financial matters.  No capital gains tax. a steady but slow growth in money supply. No trade war. some financial lending reforms. And letting business file chapter 11 with no bailouts.

        If we had done these things we would have a growing economy by now. Of course they are alien to the governmental parasites that live in DC (both parties, although one is far worse than the other)

  • The pain in Spain is easy to explain.
    By George, I’ve got it!
    They need an audit.

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