Recession fears rise as manufacturing shrinks

Fears of a fresh global recession have increased with latest data showing continued shrinkage in manufacturing levels around the world as trade war and Brexit concerns escalate.

Recession fears rise as manufacturing shrinks

Fears of a fresh global recession have increased with latest data showing continued shrinkage in manufacturing levels around the world as trade war and Brexit concerns escalate.

A recession could begin in as soon as nine months if US President Donald Trump pushes to impose 25% tariffs on an additional $300bn (€267bn) of Chinese exports and China retaliates with its own countermeasures, according to Chetan Ahya, chief economist and global head of economics at Morgan Stanley.

Ireland has been no exception to declining manufacturing, with new data for May showing the weakest improvement in business conditions and the first fall in manufacturing output here since Britain’s referendum on EU membership in 2016.

“May marked the end of the Brexit-stockpiling boost to the Irish manufacturing sector… both total and overseas new business declined during May, with the former at the fastest pace in over six years,” according to the latest monthly manufacturing industry purchasing managers index (PMI) from AIB.

However, it also noted that business confidence improved to a five-month high.

“There has been a marked slowdown in manufacturing activity globally this year, which is also evident in Ireland,” said AIB chief economist Oliver Mangan.

“It would seem that weaker global demand, as well as an unwinding of Brexit stockpiling, weighed on the Irish manufacturing PMI in May,” he said.

Manufacturing activity contracted in most Asian countries last month as an escalating trade war between Washington and Beijing raised fears of a global economic downturn and heaped pressure on policymakers in the region and beyond to roll out more stimulus.

Such growth indicators are likely to deteriorate further in coming months as higher trade tariffs take their toll on global commerce and further dent business and consumer sentiment leading to job losses and delays in investment decisions.

Some economists predict a world recession and a renewed race to the bottom on interest rates if trade tensions fail to ease at a Group of 20 summit in Osaka at the end of this month, when presidents Donald Trump and Xi Jinping could meet.

In China, the Caixin/Markit Manufacturing PMI showed modest expansion at 50.2, offering investors some relief after a gauge on Friday showed contraction.

The outlook, however, remained grim as output growth slipped, factory prices stalled and businesses were the least optimistic on production since the survey series began in April 2012.

PMIs were below the 50-point mark separating contraction from expansion in Japan, South Korea, Malaysia and Taiwan, came below expectations in Vietnam and improved slightly in the Philippines.

Meanwhile, manufacturing activity in the eurozone contracted for a fourth month in May, and at a faster pace, as the US-China trade war, slumping car demand, Brexit and wider geopolitical uncertainty took their toll.

“Euro area manufacturing remained in contraction during May, suggesting the sector will act as a drag on the wider economy in the second quarter,” said Chris Williamson, chief business economist at IHS Markit.

Activity in Germany’s export-dependent manufacturing sector decreased in May, hobbled by both declining new orders and a sharp fall in employment.

May saw the steepest downturn in British manufacturing in almost three years as new orders dried up, boding poorly for Britain’s economic growth in the second quarter.

Growth in US manufacturing activity slowed in May to its weakest pace in over two years as factory managers raised concerns about the trade war.

Additional reporting Reuters

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