Business World

Saturday 17 March 2018

Long arms of eurozone slump now hitting Asian factory output

Donal O'Donovan

ECONOMIC activity in the eurozone fell for the third month in a row in November -- and as the crisis spreads to Asia, factory output in China recorded a huge contraction, according to new economic data.

There is bad news for Ireland as the global exports and manufacturing sectors are leading the decline.

Markit's purchasing managers index (PMI) figures show the eurozone economy will shrink by 0.5pc in the fourth quarter.

PMI data is based on a survey of 1,000 company bosses and measures economic growth or decline on a scale either side of 50. Growth is recorded as a figure above 50 and an economic slowdown is recorded as any figure below 50.

The eurozone PMI for November came in at 47.2, up slightly since the previous month but the third month in a row below 50.

Markit, which prepared the research, said the situation is set to get even worse.

"Manufacturers have reported the steepest fall in new orders since May 2009, with domestic and export sales declining at sharper rates. It therefore looks highly likely that business activity could weaken across the board again in the coming months," he said.

He said the rate of decline is now gathering momentum.

"There is a heightened risk of contraction in the fourth quarter. It's depending on what happens in December but on the basis of new orders still falling and confidence low we are going to see another month of contraction," Markit said.

The latest numbers prove that Europe is now on the brink of recession and Germany and France are both seeing unexpectedly big declines.

Manufacturing output, new orders and business confidence all fell in November. Against that background employment stagnated and looks set for further falls.

The survey shows that companies are now working through backlogs of orders at the fastest pace since June 2009 -- a sign that factories are working well below capacity.

The latest data shows that the eurozone crisis has spread from the periphery to core Europe -- and from the financial sector to the so called "real economy".

The massive German economy is stagnating and France is in decline, according to the latest data.

Across the eurozone activity in the manufacturing sector has fallen to the lowest level since May 2009.

The figures are the best evidence yet that the debt crisis is dragging the real economy into decline. They also show that the economic crisis has now definitely spread to Asia.

The cooling in China threatens to exacerbate the European problems. The Chinese property market is slowing quickly leading to a reduction in demand for heavy machinery made in Europe.

The latest figures are not relentlessly bleak. In Germany the services sector escaped the overall decline, surprising economists by growing.

Indo Business

Business Newsletter

Read the leading stories from the world of Business.

Also in Business