Fears mount eurozone is heading back into recession

World business surveys yesterday painted a picture of economic malaise stretching from Beijing to Berlin, adding to concerns that the global economy was slowing down and the eurozone is heading for recession.

The 17-country eurozone appears as if it is heading for its second recession in three years. Financial data firm Markit said its Purchasing Managers’ Index suggested the eurozone economy would shrink about 0.5% in the July-to-September quarter.

Europe’s problems are creating headaches in other economies as well, particularly in China, which counts Europe as its single biggest export market.

The HSBC Flash China manufacturing PMI fell to 47.8 in August, which is its lowest level since November.

By contrast US manufacturing activity improved slightly this month, though new export orders declined for a third straight month because of reduced demand in Europe. In addition the pace of hiring slowed for the fifth month in a row.

A separate report showed the number of Americans applying for first-time jobless benefits rose unexpectedly last week.

“The indicators taken as a whole indicate a material slowdown in the pace of the world economy,” said economist Philip Shaw at Investec.

Whether that will be enough to provoke more action from central banks remained unclear, though.

The ECB is expected to cut interest rates next week, but analysts do not expect additional steps to stimulate lending.

And while minutes from the last US Federal Reserve meeting suggested another round of stimulus could come “fairly soon”, subsequent signs of improvement in the labour and housing markets may keep the central bank on the sidelines for a while longer.

St Louis Fed president James Bullard said the pace of US growth would have to worsen more significantly before the Fed acted.

“Going along at this slow pace is not enough to justify gigantic action,” he said.

Tim Ghriskey, chief investment officer at Solaris Asset Management, said yesterday’s US manufacturing data was “in line with the sort of recent economic data we have seen, which saw slight but improving economic conditions”.

Reuters