Trade fric­tions dis­rupt global fac­tory growth

Enterprise - - International news -

Man­u­fac­tur­ing ac­tiv­ity took a hit in June across Europe and Asia, with ex­porters los­ing mo­men­tum even be­fore promised trade tar­iffs kick in, un­der­scor­ing wor­ries the U.S. ad­min­is­tra­tion´s pro­tec­tion­ist poli­cies could de­rail global growth.

U.S. Pres­i­dent Don­ald Trump has threat­ened tar­iffs on Euro­pean cars on top of du­ties he im­posed on steel im­ports from the Euro­pean Union.

There are also fears that a trade stand­off be­tween China and the United States could harm man­u­fac­tur­ers who rely on the world´s two largest economies for growth.

Stocks, the euro and oil prices fell as the data were the lat­est to sug­gest world growth may have peaked.

The re­cent eco­nomic strain is likely to in­ten­sify as the ef­fects of the heated China-U.S. trade spat rip­ple through global sup­ply chains.

Weak ex­port sales and stum­bling new or­ders knocked euro zone fac­tory growth in June.

IHS Markit´s May fi­nal man­u­fac­tur­ing Pur­chas­ing Man­agers´ In­dex for the bloc slipped for a sixth month, fall­ing to an 18-month low of 54.9.Ger­man fac­tory growth slipped to an 18-month low and French man­u­fac­tur­ing ac­tiv­ity slowed more than pre­vi­ously thought in June to its weak­est pace in nearly 1-1/2 years.

While Bri­tish fac­to­ries kept up a steady pace of growth, fears of a full-blown global trade war and wor­ries about stalled ne­go­ti­a­tions with Brus­sels on leav­ing the EU knocked a gauge of con­fi­dence about the out­look down to a sev­en­month low.

“To­day´s num­bers con­tinue to cor­rob­o­rate that man­u­fac­tur­ing set­tled into a lower gear in the first half of the year,” said Neal Kil­bane, se­nior econ­o­mist at Ox­ford Eco­nom­ics.

“The very real threat of the cur­rent trade dis­pute with the U.S. es­ca­lat­ing fur­ther means that Europe´s man­u­fac­tur­ers are likely to have to ne­go­ti­ate stormy wa­ters for the rest of year.” The slow­down was broad-based across not just Europe but most of Asia as well.

Ship­ments from China and Ja­pan, ma­jor man­u­fac­tur­ing

hubs, con­tracted in June, while busi­nesses across Asia also took on higher in­put costs as the price of oil and other com­modi­ties rose, ac­cord­ing to monthly man­u­fac­tur­ing sur­veys. “We ex­pect the net con­tri­bu­tion of trade to growth to be­come neg­a­tive in the sec­ond half of the year, if it hasn´t al­ready for some coun­tries,” ANZ Asia econ­o­mist Eugenia Vic­torino said.

“The story for 2018 then be­comes do­mes­tic de­mand, but it is not a ho­moge­nous story and we don´t ex­pect a ho­moge­nous re­ac­tion from Asian cen­tral banks.” How­ever, with the U.S. Fed­eral Re­serve in­creas­ingly hawk­ish on rates, hardly any Asian cen­tral bank has room to sup­port con­sump­tion as they need to keep their own rates rel­a­tively high to pre­vent desta­bil­is­ing cap­i­tal out­flows.

Apart from China po­ten­tially cut­ting re­serve re­quire­ments fur­ther this year, no other cen­tral bank is seen eas­ing mon­e­tary pol­icy, and the coun­tries run­ning cur­rent ac­count deficits may have to hike rates fur­ther.

China´s Caixin/Markit Man­u­fac­tur­ing Pur­chas­ing Man­agers´ in­dex (PMI) de­clined to 51.0 in June from May´s 51.1, with a sub-in­dex show­ing new ex­port or­ders con­tract­ing for the third straight month and the most in two years.

An of­fi­cial PMI sur­vey also fu­elled con­cerns about the strength of the world´s sec­ond-largest econ­omy, where re­cent data in­clud­ing credit growth, in­vest­ment and re­tail sales have dis­ap­pointed.

The econ­omy is feel­ing the pinch of an in­ter­nal crack­down on debt and risky fi­nanc­ing as well as ex­ter­nal pres­sure from Trump´s ´Amer­ica First´ pro­tec­tion­ist poli­cies. The U.S. has threat­ened to im­pose du­ties on up to $450 bil­lion of Chi­nese im­ports, with the first $34 bil­lion por­tion set to go into ef­fect on July 6. Bei­jing plans to re­tal­i­ate.

This has caused anx­i­ety in fi­nan­cial mar­kets, lead­ing to the worst per­for­mance on record for the Yuan and the deep­est monthly fall in Chi­nese stocks since Jan­uary 2016. “The lat­est PMI read­ings sug­gest that the econ­omy lost some mo­men­tum last month. With credit growth still cool­ing

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