Weak factory activity dampens hopes for global growth recovery
LONDON/TOKYO (Reuters) – 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 euro zone 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 signaled no more rate hikes this year, dived again to fall below zero.
In New York, the US 10-year Treasury note yield plunged to a 14-month low as growth worries further weighed on inflation expectations.
That benchmark yield dropped below the yields on all maturities of T-bills for the first time in 12 years, a socalled yield-curve inversion that is often a harbinger of economic recession.
“While such an inversion has traditionally been an indicator of a recession, this time around it may be less about the prospects for the US economy and more about spillovers from what is happening in Europe and the bond market there, together with the effects of the Fed’s surprising decision to be very dovish again with its unconventional policy tools,” said Mohamed El-Erian, chief economic adviser at Allianz in Newport Beach, California.
US stocks, European shares and the euro also fell on Friday. The benchmark S&P 500 was off by 1.6 percent and on pace for its biggest drop in nearly three months.
Global trade tensions continue to be among the main culprits behind the gloom.
“No other factor shapes the euro zone business cycle more than the ups and downs of global trade,” economists at Berenberg, a bank, said.
The US 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 euro zone’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 euro zone’s dominant services industry.