The first day of the month always brings a plethora of economic data but today’s reports make for particularly depressing reading.
Figures for the purchasing managers index from the EU, United Kingdom and China all show a downturn in production, sparking worries that the world is facing a full scale economic slowdown the likes of which has not been seen since 2009. Is it a case that we are back to square one?
China’s slowdown is particularly worrying as the nation had seemed impervious to the global financial crisis a few years ago. Now it seems as though problems in the Euro zone have deteriorated to such a state that even the mighty Chinese dragon has started showing signs of illness and gradually becoming lethargic. Its manufacturing grew less than predicted in May pulling down on the Australian dollar and weakening other Asiatic currencies. Its PMI data grew at its slowest pace in six months falling from 53.3 to 50.4. A reading above 50 indicates growth, so the mighty dragon is edging just above stagnation.
If the Chinese enter recession then it will shake things up a lot and could well lead to dire implications for the struggling Eurozone. With the report signalling a deepening economic slowdown, Premier Wen Jiabao will have to take more-aggressive steps to sustain expansion after he pledged a sharper focus on stabilizing growth.
Europe also posted weaker than expected figures with manufacturing shrinking at a ever quickening pace. Many member nations of the single currency are in a recession and the worries over Spain and Greece are weighing like dark clouds over the continent.
“There’s a lot of nervousness in the markets and we see more focus on bond markets with the German 10-year yield reaching record lows every day. Equities are following that trend from the bond market, our concern is that we saw disappointing PMI from China, and that is weighing on sentiment. China is very important for the global manufacturing cycle. If China is slowing, it spills over to Europe,” said Anders Moeller Lumholtz, senior analyst at Danske Bank.
The UK posted its worst performance for three years giving a almost fatal wound to the chances of the country recovering quickly from its first double dip recession since the 1970’s. The terrible figures raise the chance of the Bank of England implementing more quantitative easing measures, which in turn will lead to a weakening of the pound.
“This is a collapse, this is a huge decline. We’re still a little bit above the lows we hit in the depths of the 2009 recession, but we’re heading that way sharply,” said Ross Walker, an economist at RBS.
And we’re not done yet. The United States posted disappointing job figures, suggesting that the world’s only superpower’s financial recovery is close to stalling. The jobless rate rose from 8.1% to 8.2%.
“The labour market is clearly deteriorating,” said Hugh Johnson, chairman and chief investment officer at Albany, New York-based Hugh Johnson Advisors LLC, “Confidence in the economy is declining. Businesses are extremely reluctant to add workers when there’s so much uncertainty.”
Overall it’s looking like June could well be a rather depressing month with recessions starting to bite harder, higher unemployment, weakening currencies, civil unrest and European leaders dithering on how to fix the mess they have made.
Oh joy.
The Pound to Euro exchange rate is currently trading at 1.20
The Pound to US Dollar exchange rate is currently trading at 1.541
The Euro to Australian Dollar exchange rate is currently trading at 1.280
The Euro to US Dollar exchange rate is currently trading at 1.245
The Euro to Pound exchange rate is currently trading at 0.806
The US Dollar to Japanese Yen exchange rate is currently trading at 78.10
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