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LONDON: Factory activity remained weak around the world last month, reinforcing worries of a global slowdown as forward-looking indicators pointed to gloomy times ahead, surveys showed on Monday.

Eurozone manufacturers had their weakest month for almost six years in March. While China showed a slight, surprising recovery last month, growth in new domestic and export orders was marginal, in a sign that stimulus already injected into Asia’s growth engine may not be enough.

Factory activity in Germany, France, Japan, South Korea, Malaysia, and Taiwan shrank further, adding to expectations of a dovish turn from central bankers.

Britain was an anomaly, with manufacturing growth at an unexpected 13-month high, but that was driven by factories stockpiling for Brexit at an explosive rate, unlike anything seen before in a major rich economy.

“The jump in the UK manufacturing PMI in March largely reflects producers rushing to complete work before the Brexit deadline, rather than a strengthening of underlying demand,” said Samuel Tombs at Pantheon Macroeconomics.

Figures from Germany and France, the eurozone’s two biggest economies, showed manufacturing activity contracted, as it did in Italy. Growth returned in Spain after a brief dip in February but activity was still stagnating.

So IHS Markit’s March final manufacturing Purchasing Managers’ Index (PMI) for the eurozone declined for an eighth month, coming in at 47.5 from February’s 49.3, its lowest reading since April 2013.

“The fall in the manufacturing PMI ... shows that the industrial recession is still deepening,” said Holger Schmieding at Berenberg.

Casting a shadow over the bloc’s outlook, new orders fell at their fastest rate in over six years, backlogs of work were run down at their fastest pace since late 2012 and factories curtailed purchases of raw materials as they stockpiled unsold products.

The weak global environment is feeding back into the US economy, prompting the Federal Reserve to abruptly end its policy tightening last month and causing the Treasury yield curve to briefly invert last week — a potential signal of a looming recession.

A pause from the Fed has changed the game for many central banks and investors are betting on a growing list of potential rate cutters.

Last month, the European Central Bank changed its outlook. It pushed back the timing of an interest rate rise until 2020 at the earliest and said it would offer banks a new round of cheap loans to help revive the economy.

“The big picture is that with the economy performing poorly, pressure is soon likely to build on the ECB to increase its policy support,” said Jack Allen at Capital Economics.

p/ China’s Caixin/Markit Manufacturing PMI expanded at the strongest pace in eight months in March, rising to 50.8 from 49.9, the highest level since July 2018.

An official survey released on Sunday also showed modest expansion.

Economists cautioned there were seasonal factors in play, with activity in March traditionally picking up markedly whenever the Chinese Lunar New Year holidays fell in February, as they did this year.

But if the trend is sustained, it could mark the turnaround China’s policymakers had hoped for after some heavy fiscal and monetary stimulus, including five cuts in bank reserve requirements in the past year, although analysts say more measures may be in the pipeline.

Chinese Premier Li Keqiang said last month the government has additional monetary policy measures that it can take, and will even cut “its own flesh” to help finance large-scale tax cuts.

On the trade front, US President Donald Trump said on Friday talks with China were going very well, but cautioned he would not accept anything less than a “great deal” after top US and Chinese trade officials wrapped up two days of negotiations in Beijing.

“A set of better economic numbers on the Chinese side could raise the bargaining chips in negotiations with the US, as they could show that the Chinese economy can still bounce back from the tariffs imposed by the US so far,” said Kevin Lai, chief Asia ex-Japan economist at Daiwa Capital Markets.

The US-China tariff war and slowing Chinese demand after a campaign to reduce financial risk-taking have caused broad damage, hurting everyone from small firms in the supply chains of Chinese manufacturers to global tech behemoths such as Apple.

Published in Dawn, April 2nd, 2019