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A slowdown in manufacturing growth spread across the globe in June, as factory output fell in China, Europe and the United States, suggesting the global economic recovery may be losing steam.
But the overall level of factory activity continued to expand, suggesting that manufacturers may be experiencing a return to more normal rates of growth rather than heading for a contraction.
In China, manufacturing growth slowed more than economists had forecast, and a gauge of factory output in the 16-member euro region fell for the second consecutive month, two surveys showed.
Growth in the U.S. manufacturing sector moderated in June after three months of very rapid growth, according to a survey of purchasing managers at companies across the nation released yesterday (Thursday). The Institute for Supply Management (ISM) index fell from 59.7% in May to 56.2% in June. The median forecast of economists surveyed by Bloomberg News was for a reading of 59.
Stocks fell around the world on concerns that a slowdown in China's export-driven economy, combined with deepening austerity measures from Spain to the United Kingdom, will undermine the global recovery.
"We expect data to soften from here," Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc (NYSE ADR: RBS) in London told Bloomberg. "It's going to raise some question marks about the outlook, about a double dip. It's an environment with significant downside risks."
When the Organization for Economic Cooperation and Development (OECD) raised its global growth forecast for this year in May, it said that a "boom-bust scenario cannot be ruled out" in some countries.
Manufacturing output fell slightly in China and grew more slowly across the rest of Asia in June, according to a string of factory activity reports released yesterday.
The combination of weaker output in China and slower expansion in Japan, South Korea, India and Taiwan confirms that the region is seeing an easing of the growth surge that followed the global financial crisis.
China posted unexpectedly slower growth. The unofficial but closely watched HSBC Holdings PLC (NYSE ADR: HBC) purchasing managers index fell to 50.4 from 52.7 in May and the official PMI index published by the Federation of Logistics and Purchasing fell to 52.1 in June from 53.9.
An index figure of more than 50 indicates an expansion of activity while less than 50 points to a contraction.
"The moderation in the manufacturing PMI implies slower sequential growth in China's manufacturing sector, partly due to the tightening measures taking effect. But fears about a hard landing are overplayed," Hongbin Qu, HSBC's China chief economist told The Financial Times.
HSBC expects China's economy to continue growing strongly in the second half of the year, underpinned by massive investment spending and robust private consumption, Qu told the FT.
Baosteel Group Corp, China's second-biggest steelmaker, earlier this week cut its growth plans, slashing its capacity forecast by 38% in 2012 and predicting a "bumpy, unpredictable and long" global recovery, Bloomberg reported.
Slower economic growth over the second half of this year in China is welcome news "given the slight uptick in inflation recently," Stephen Roach, Morgan Stanley's (NYSE: MS) Asia chairman, told Bloomberg.
A pace of 8% or 9% would be "much more sustainable than the overheated growth rate in the first quarter," he said.
The recovery in the Eurozone is also showing signs of weakening. German investor confidence plunged in June and unemployment rose to 10.1% in April, the highest in almost 12 years. In France, consumer confidence plunged in June for the fifth straight month.
U.S. manufacturing expanded last month at the slowest pace this year as factories received fewer orders and demand from abroad waned, the report from the Tempe, Arizona-based ISM showed.
June's reading was the lowest since December, but is still at a high level historically, consistent with 4.8% annualized growth in the economy, a statement by the ISM said.
"The sector appears to be solidly entrenched in the recovery," Norbert Ore, head of the ISM's survey committee said in a statement obtained by MarketWatch. "Comments from the respondents remain generally positive. But expectations have been that the second half of the year will not be as strong in terms of the rate of growth, and June appears to validate that forecast."
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