China could be forced to introduce further stimulus measures to shore up its economy even as it appeared that business activity in the eurozone appears to have shaken off the debt bailout woes of Greece.
The preliminary China manufacturing purchasing managers’ index, published yesterday, showed that output slumped to its lowest level in six and a half years in August, with a reading of 47.1, according to a survey by Caixin Media and Markit Economics.
That was the lowest level since March 2009, when the global economy was still suffering from the fallout from the financial crisis, and marks the sixth month running that the manufacturing PMI in China has stayed below the breakeven point of 50 that separates expansion from contraction.
The news sent stocks tumbling in neighbouring South Korea and Japan, with the Nikkei down 598 points to 19,435.83, a drop of almost 3 per cent.
The Shanghai Composite index, one of China’s largest stock exchanges, was down by more than 4 per cent. Akira Amari, Japan’s economics minister, said yesterday that he expected the Chinese government to take steps to prevent its economic slowdown from becoming a global problem. Beijing’s GDP target of “about 7 per cent” in 2015, if reached, would be its slowest pace of growth for 25 years.
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Bill Adams, an economist at PNC, said: “Real GDP growth is probably slipping under 7 per cent in the second half of 2015, in line with our forecast for 6.8 per cent for the full year of 2015 and 6.2 per cent for 2016.
“At the margin, this additional evidence of China’s weakening economy puts downward pressure on global prices of oil, coal, iron ore, steel and other basic materials. China is one more force for weak global inflation in late 2015 and 2016.”
The PMI survey’s key sub-indices all deteriorated in August, as factory output fell to a near four-year low, with domestic and export orders declining at a faster rate than in July, and companies laying off more employees.
The news came as a survey of business sentiment in the eurozone, also published by Markit, found that the composite purchasing managers’ index touched 53.9 in July, beating forecasts of 53.7. The figure was marginally below the four-year high of 54.2, in June, but analysts noted that the index has now been in positive territory since the middle of 2013.
Chris Williamson, Markit’s chief economist, said: “The eurozone economy showed reassuring resilience in the face of the Greek debt crisis in July. With survey results like these, the European Central Bank will no doubt see the eurozone recovery as remaining firmly on track, supporting the view that the region looks set to grow by at least 1.5 per cent in 2015.”
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Stronger-than-expected growth among manufacturers helped Germany’s private sector expand at a faster rate in August, suggesting Europe’s largest economy is on track for a solid third quarter. The German manufacturing index rose to 53.2 from 51.8 in August, the highest in 16 months.
“Germany’s private sector economy shifted into a higher gear in August with output and new orders increasing at the sharpest rate in four months,” Oliver Kolodseike, a Markit economist, said.
•US oil prices slumped close to $40 a barrel yesterday, extending weekly losses to their longest losing streak in nearly 30 years amid fears of the Chinese slowdown and a widening global supply glut.
The price of US crude for delivery in October sank to $40.11, its lowest level in more than six years. The benchmark US oil contract has now fallen by about one third over eight consecutive weeks. Brent crude, the benchmark North Sea contract, was also knocked lower by 2.75 per cent to $45.33 a barrel, close to its lowest level since March 2009. It was on course for its seventh weekly decline in eight weeks.
With no scheduled meeting of the Opec cartel of oil exporters due until December, hopes are receding of any action by Saudi Arabia to reverse recent declines by curbing production. In 1985, oil prices tumbled to $10 a barrel from about $30 over five months after Opec increased production in a bid to regain market share after a rise in non-Opec output.