GERMAN manufacturing nosedived and US production slowed down last month amid concern that the euro crisis was dragging the world’s biggest economies back into recession.
The price of Brent crude oil, which has declined sharply in response to falling Chinese output, dropped to an 18-month low of close to $90, and the US stock market lost all the gains made over the week.
The US situation is expected to deteriorate after a measure of manufacturing output revealed a marked slowdown and the Philadelphia branch of the Federal Reserve reported a bigger slump.
The financial information firm Markit said its US manufacturing purchasing managers’ index fell to 52.9 in June from 54.0 in May, the lowest for 11 months. The Philly Fed said drops in new orders and shipments hurt manufacturers, which until a few months ago were expanding output rapidly.
The Dow Jones industrial index fell 211 points to 12,613 in afternoon trading, wiping out its gains for the week.
Martin Weale, a Bank of England official, indicated that he would back looser monetary policy in response to the global slowdown and fears of the UK recession continuing through the summer.
Weale said that without more innovative schemes to lower the costs of wholesale funding, financial institutions would struggle to offer affordable loans to small and medium-sized businesses.
He had voted against an increase in quantitative easing at the monetary policy committee’s meeting this month, he said, only because the Bank’s £325bn of quantitative easing appeared to be running out of steam. The Bank of England issued £5bn of six-month loans to banks on Wednesday to lower borrowing costs. It will offer a minimum of £5bn each month to banks, which must bid for the cash.
The new City of London regulator, the Financial Policy Committee, is also expected to launch a support scheme for banks. Analysts said that without concerted action from policymakers the UK economy was in danger of slipping further into recession.
In China, a gauge of manufacturing showed the eighth consecutive drop in output in June, as new orders for goods declined. Collapse in demand across the eurozone for Chinese goods was blamed for the decline, though a fall in consumer spending in the US was a factor.
Germany’s private sector shrank for the second month running in June, with manufacturing activity hitting a three-year low, according to Markit. Markit’s index slumped to its lowest level since the height of the global financial crisis in June 2009. Germany’s manufacturing sector shrank at its fastest rate since that same month, while growth in the services sector nearly ground to a halt.
The numbers add to concerns that Germany’s economy is losing stamina and may have contracted in the second quarter after it steamed ahead in the first three months of the year.
“The average output index for Germany in the second quarter is 49.4, so that’s probably similar to around a 0.1 per cent drop in GDP,” said Markit’s chief economist, Chris Williamson. — The Guardian, London
