'Double-dip' fears as global data shows growth decline
FEARS of a "double-dip" in the global economy grew, as a slew of economic data came in weaker than expected yesterday.
More Americans than had been anticipated applied for jobless benefits last week, and a survey showing manufacturing expanded in June at the slowest pace this year was also worse than economists' forecasts.
The US Institute for Supply Management's manufacturing gauge fell to 56.2 last month from 59.7 in May, where a reading greater than 50 points to expansion. A measure of new orders dropped to the lowest level since October.
A similar survey in Ireland also showed slower growth. In Britain, the Purchasing Managers' survey index dropped slightly from a 15-year high in May, with export orders falling sharply from 56.7 to the lowest point since last August.
China's Purchasing Managers' Index fell to a lower-than-forecast 52.1 in June from 53.9 in May.
Long-term interest rates fell, and the New York stock market shed 1pc in morning trading. There were bigger falls in Europe, reflecting a sense that the debt crisis in the euro area is now the biggest threat to global recovery.
"Fear, concern and uncertainty are in every corner of the market," said Daniel Weston, Munich-based portfolio manager at Schroeder Equities.
"There are limited reasons to be bullish, and negative surprises in the data and in the news continue to support the trade on the sell side."
The FTSE index of 300 leading EU companies lost 3pc. This followed a trimming of its growth forecast and interest rate outlook by the Swedish central bank, because of the effect of fiscal correction programmes in the euro area.
"This tightening is expected to dampen GDP growth in the euro area, which will also hold back GDP growth and inflation in Sweden in the long run," the central bank said, as it raised interest rates from 0.25pc to 0.5pc. Sweden is not a member of the eurozone.
The US authorities have suggested that euro-area problems are affecting global growth.
The issue was discussed at a recent meeting between US President Barack Obama and Federal Reserve chairman Ben Bernanke, but there are no signs of extra stimulus for the US economy. "The underlying conditions are probably less robust than was generally expected," Keith Hembre, chief economist at US Bancorp's FAF Advisers said.
Former Fed chairman Alan Greenspan played down the worries, saying the US economic recovery is undergoing a "typical pause" that will be shaped by the performance of stock markets.
"While ordinarily we see the stock market driven by economic events, I think it's now more the reverse," Greenspan said in an interview on CNBC.
"What we do know is stock prices are a leading indicator," he added.