Factories From Europe to Asia Reel Under U.S.-China Trade War
ECB President Mario Draghi has held out the prospect of lower interest rates and renewed asset purchases for Europe.
(Bloomberg) --
Manufacturing across vast parts of Europe and Asia remain deeply mired in a crisis that took another turn for the worse over the weekend.
One day after the U.S. and China enacted new tariffs on each other’s imports, factories from Germany and Italy to Japan, South Korea and Taiwan sent a gloomy reminder that they are suffering badly from increased global trade hostility. Purchasing managers’ indexes for all those countries, as well as the 19-nation euro area, signal a contraction in activity.
The global growth outlook is already the lowest since the financial crisis a decade ago, and central banks have started to cut interest rates to underpin domestic momentum. With no end to the U.S.-China trade war in sight and the risk of a disorderly Brexit increasingly weighing on European sentiment, pressure may mount on policy makers to do more.
ECB President Mario Draghi has held out the prospect of lower interest rates and renewed asset purchases for Europe as soon as this month. Federal Reserve Chairman Jerome Powell may shed light on his intentions in a speech on Friday -- after the publication of key gauges for manufacturing and the labor market.
In Asia, Japan, South Korea and Taiwan have been hit hardest by trade tensions, a cooling technology boom and slowing demand in line with a weaker global economy. China’s official manufacturing index dropped further below 50, signaling contraction, with sub-gauges showing that domestic and new overseas orders contracted.
What Bloomberg’s Economists Say
“August purchasing managers’ indexes showed weakness spreading across Asia’s economies...The deterioration increases pressure on Asia’s authorities to step up policy support.”
--Chang Shu and Justin Jimenez
Read the ASIA REACT
The outlook for corporate earnings has clouded in emerging markets. Analysts have cut the average profit estimate for the benchmark MSCI Emerging Markets Index for a sixth successive week, the longest streak in four years.
In Europe, manufacturers including Germany’s Daimler, Italy’s Pirelli and France’s Renault are among those that have cut their forecasts. Factory activity in the region has shrunk for seven months, with the latest update showing order books contracted and companies shed jobs in a sign that they have excess capacity.
The headline measure for the U.K. dropped to the lowest since 2012.
“A marked deterioration in optimism about the year ahead suggests companies are expecting worse to come,” said Chris Williamson, chief business economist at IHS Markit.
Developments in U.S.-China trade relations remain the dominant driver of sentiment. On Sunday, higher U.S. tariffs on roughly $110 billion in Chinese imports took effect, as did Beijing’s retaliatory duties on U.S. goods.
“High uncertainty over U.S.-China trade policies, Brexit and other political and geopolitical developments continues to weigh on the global outlook,” economists at Barclays wrote in a note. “The news flow leaves room for hope on potential U.S.-China or Brexit deals, but the development pattern so far makes us skeptical about any sudden solutions.”
--With assistance from Enda Curran and Michelle Jamrisko.
To contact the reporter on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net
To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Zoe Schneeweiss
©2019 Bloomberg L.P.