A string of negative reports coinciding with the start of the fourth quarter has revealed a significant deterioration in the global economy, with world trade slowing, manufacturing contracting, and the number of unemployed workers in the eurozone hitting a record high.
Despite the steep slide, stock prices in Europe and the United States rose on last Monday, fueled by new central bank injections of cash into the global financial system, an intensification of austerity measures, and expectations of new bank bailouts.
Eurostat, the European Union statistics agency, reported last Monday that the unemployment rate in the 17-member euro zone remained at record highs in August, while the ranks of the unemployed grew by 34,000, bringing the total of jobless workers to a new high of 18.2 million. The jobless rate was 11.4 per cent, the same as in July. A year ago, the region’s jobless rate was 10.2 per cent.
In the 27-nation European Union as a whole, 25.5 million people were out of a job in August. The EU unemployment rate was 10.5 per cent.
The unemployment rates of Spain, Greece and Portugal, the countries hardest hit by the euro crisis, all rose. Spain’s unemployment rate reached 25.1 per cent, that of Greece hit 24.4 per cent, and Portugal’s rose to 15.9 per cent.
The unemployment rate for Italy stayed at 10.7 per cent and France’s remained at 10.6 per cent. The French government said the number of unemployed had hit a new record of three million.
Youth unemployment in the eurozone likewise worsened, hitting 22.8 per cent in August, up more than two percentage points from a year ago, according to the Eurostat report. In Spain, 52.9 per cent of people under 25 were without work.
The jobs crisis in Europe is likely to get even worse. Markit Economics reported last week that its eurozone purchasing managers’ index (PMI), a key measure of manufacturing output, was 46.1 in August. As a reading below 50 indicates contraction, the August report marked the fourteenth consecutive month of decline in the manufacturing sector.
PMI figures released last week for both Germany and France, the core countries of the eurozone, showed sustained contraction. France’s PMI showed one of the biggest one-month falls in the survey’s 14-year history.
Chris Williamson, chief economist at Markit, said that “manufacturers across the eurozone area suffered the worst quarter for three years in the three months to September. Output, order books and exports all continued to fall at steep rates … causing firms to cut their staffinglevels once again.”
JPMorgan Chase’s global manufacturing purchasing managers’ index for September, at 48.9, remained below the 50 level.
The eurozone economy contracted by 0.2 per cent in the second quarter of 2012, and economists have predicted that it will show a further decline for the third quarter. The New York Times quoted Jennifer McKeown, an economist with Capital Economics in London, as saying the eurozone economy would contract by 2.5 per cent next year.
The economy of the entire European Union contracted by 0.1 per cent in the second quarter.
The ongoing downturn in Europe continues to drag down the export-dependent Asian economies. China’s official manufacturing purchasing managers’ index was below 50 for a second consecutive month, coming in at 49.8 for September after a reading of 49.2 in August. TheChinese economy has already slowed for six consecutive quarters, and a seventh quarter of slowdown now looks likely.
Japan is in a similar state. The country’s central bank said last Monday that the Tankan report, a measure of business confidence, fell to minus-3 in July from minus-1 in June. Japan’s manufacturing purchasing managers’ index reading of 48 likewise indicated contraction.
Last Friday, the Japanese government released figures showing that industrial production fell by 2.9 per cent in September and 1.3 per cent in August. Exports from South Korea, meanwhile, fell in September for the third consecutive month.
In the US, economic growth for the second quarter was revised downwards last month and a new report showed that durable goods orders had tumbled. The Commerce Department said Thursday that US gross domestic product grew by only 1.3 per cent in the second quarter, a downward revision from its earlier estimate of 1.7 per cent and significantly less than the two per cent growth rate in the first quarter of the year. Orders for long-lasting manufactured goods (durable goods) fell by 13 per cent in August, the largest fall since 2009.
The deepening global downturn is weighing heavily on international trade. The volume of global trade is expected to grow only 2.5 per cent this year, down from a five per cent in 2011 and 14 per cent in 2010, according to a survey released last Monday by the World Trade Organisation. A separate report by an agency of the Dutch government estimates that world trade actually contracted in June and July.
Global stock markets responded to the dismal news by staging a rally. The German DAX rose by 1.53 per cent and the British FTSE by 1.37 per cent. The response of stocks in the US was more muted, but still positive, with the Dow rising 0.58 per cent and the S&P 500 by 0.27 per cent.
The marked deterioration of the real economy is a reflection of enormous job cuts, slashing of wages, and austerity measures impacting social programmes, pensions, health care and other benefits of employees. It is the common citizen who is paying for the crisis of the world financial system.—Courtesy: WSWS