British factories hit by falling demand amid global meltdown for manufacturers

| August 2, 2012 | 0 Comments

Hugo Duncan

16:33 EST, 1 August 2012


16:33 EST, 1 August 2012

The fragile global economy was careering towards the rocks after an alarming decline in factory output around the world.

The manufacturing slump was worst in the eurozone and Britain but other major economies such as the United States, China and Japan also felt the pain.

Exporters across the world were rocked by falling demand – fuelling fears that the crisis in the single currency bloc is taking its toll on global growth.

Losing their spark: Falling demand has hit manufacturing output across all of the major economies

Losing their spark: Falling demand has hit manufacturing output across all of the major economies

Andrew Kenningham, senior global
economist at Capital Economics, said: ‘The global economy, which slowed
sharply in the second quarter, has made a poor start to the third.

‘Growth appears to have slowed in
most of the major advanced economies in July. The fitful global recovery
has once again run into serious difficulties – if, indeed, it can be
called a recovery at all.’

The latest Markit/CIPS index of
activity in UK factories – where anything below 50 represents decline –
fell from 48.4 in June to 45.4 in July. It was the weakest reading on
the so-called purchasing managers’ index since May 2009 and dented hopes
that the country will recover from the longest double-dip for more than
a half a century this summer.

The slump was even worse in the
eurozone where the manufacturing PMI crashed to 44 – the lowest level
since June 2009 – as Germany and France suffered along with Spain and
Italy. Peter Vanden Houte, an economist at Dutch bank ING, said: ‘This
clearly indicates that the rot has now also affected the core

The PMI figures are closely watched by central bankers and governments looking to assess the health of the economy.

Output was also down in the US as
well as in China and Japan as key Asian economies were buffeted by the
financial storm tearing through the eurozone.

India, Asia’s third biggest economy
behind China and Japan, saw growth slow, with the PMI compiled by HSBC
down from 55 in June to 52.9 in July.

‘Asia is finally getting caught up in
the European mess with trade finally starting to buckle,’ said Frederic
Neumann, an economist at HSBC. ‘There is much more pain to come on the
export side.’

The JP Morgan Global Manufacturing
PMI fell to 48.4 in July from 49.1 in June – the second month of
worldwide decline in a row. Factories across the world cut jobs for the
first time since November 2009, the report said, adding that more job
losses could be on the way.

‘Recent cost reductions are providing
some respite, but this will be of little long-term benefit if
underlying demand fails to pick up,’ said David Hensley, director of
global economics at JP Morgan.

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