Manufacturers in Europe, Japan and the United States suffered in March as surveys showed trade tensions had left their mark on factory output, a setback for hopes the global economy might be turning the corner on its slowdown.
Factory activity in the 19-country eurozone contracted at the fastest pace in nearly six years.
In Japan, manufacturing output shrank the most in almost three years, hurt by China’s economic slowdown.
And a measure of US manufacturing was its weakest since June 2017 while forecasters at the Federal Reserve Bank of Philadelphia slashed their estimate for economic growth in early 2019.
German 10-year bond yields, which plunged on Thursday after the US Federal Reserve signalled no more rate hikes this year, dived again to fall below zero.
European shares and the euro also fell yesterday.
In New York, the spread between the three-month US Treasury bill yield and the 10-year note yield narrowed to a 12-year low – a sign of concern among investors about the growth outlook.
“No other factor shapes the eurozone business cycle more than the ups and downs of global trade,” economists at Berenberg, a bank said.
The United States and China are due to resume face-to-face talks next week, but it is unclear if the two sides can narrow their differences and end the trade war between the world’s two largest economies.
European officials are also worried about the risk of US tariffs on car imports from Europe.
The drop in the eurozone’s manufacturing purchasing managers index to a 71-month low of 47.7 from 49.4 in February raised the risk trade flows could turn even more negative in the short term, the Berenberg economists said.
The manufacturing downturn was partly offset by stable – but relatively weak – growth in the eurozone’s dominant services industry.
But the surveys suggested the bloc’s economy had a poor start to 2019.
IHS Markit, which published the surveys, said the PMIs pointed to first-quarter economic growth of 0.2% in the eurozone, below the 0.3% predicted in a Reuters poll last week. The eurozone grew 0.2% in the final three months of 2018, its slowest pace in four years.
Earlier this month, the European Central Bank changed tack by pushing out the timing of its next rate increase until 2020 at the earliest and said it would offer banks a new round of cheap loans to help revive the economy. “We highlight downside risks mainly stemming from the external side – e.g. trade tensions, a Chinese-led global slowdown,” Barclays economists Radu-Gabriel Cristea and Francois Cabau said about the eurozone.
“The protracted weakness in manufacturing remains a lingering risk, and overall growth concerns are likely to intensify should the industrial backdrop further deteriorate.
At the same time, Italy and Brexit woes remain non-negligible, the uncertainty a further drag on sentiment.” The headline Flash Markit/Nikkei Japan Manufacturing Purchasing Managers Index (PMI) was a seasonally adjusted 48.9, the same as February’s final reading. The index was below the 50 threshold that separates contraction from expansion for the second consecutive month.
“Concern of weaker growth in China and prolonged global trade frictions kept business confidence well below its historical average in March,” Joe Hayes, an economist at IHS Markit, said.
The flash index for total new orders – domestic and foreign – fell to its lowest since June 2016, the survey showed. Japan is exposed to the dispute between Washington and Beijing as it ships to China big volumes of electronics items and heavy machinery used to make finished goods destined for the United States.
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