China factories limp along, Japan inflation goes backwards

China’s factory sector struggled to gain speed in September while Japanese inflation went backwards in August despite the best efforts of policymakers, underscoring the limits of stimulus in reviving world growth.

Friday’s unflattering figures bookmarked a week in which the IMF warned it would likely downgrade forecasts for the US economy, and the World Trade Organization slashed its outlook for global trade flows.

That was unwelcome news for markets spooked by troubles at Deutsche Bank, whose US shares took a hammering on reports some hedge funds had reduced financial exposure to Germany’s largest lender. The bank said the “vast majority” of its clients remained supportive, but the situation still drew comparisons to the 2008 failure of Lehman and the resulting global financial crisis. There was at least some evidence that China, the world’s second largest economy, had stabilised, if only because of a burst of government spending and a red-hot housing market.

The Caixin measure of manufacturing activity (PMI) edged up a tenth of a percentage point to 50.1, led by output and new orders. While the move was marginal, it was only the second time the index had reached positive territory since February 2015. The US economy also looked to have bounced back in the third quarter, while a string of data showed Europe weathered Britain’s Brexit vote better than many had feared. All of which encouraged Barclays to nudge up its 2017 call for global growth to 3.5 per cent, from an expected 3.1 per cent this year. Yet a true lift-off still seems remote.

“Given the modest acceleration in growth that we forecast and the many downside risks around these forecasts, it seems overly optimistic to suggest that the global economy has reached “escape velocity”,” said Barclays economist David Fernandez.