Factory activity falls sharply in Japan, Europe

Both sets of PMIs point to continued slowdown in global economy amid faltering demand

TOKYO/BRUSSELS • Signs of a continued slowdown in the global economy continued to show, with both Japanese and European manufacturing activity falling sharply.

Growth in Japan's manufacturing activity slowed sharply this month as new export orders contracted at the fastest pace in three years, a worrying sign that overseas demand is deteriorating rapidly as China's economy slows, a preliminary survey showed yesterday.

The Markit/Nikkei Flash Japan Manufacturing Purchasing Managers Index (PMI) fell to 50.2 on a seasonally adjusted basis from a final 52.3 in January.

But it remained above the 50 threshold that separates contraction from expansion for the 10th consecutive month.

The sub-index for new export orders fell to a preliminary 47.9 from 53.1 last month, which would indicate the biggest contraction since February 2013 if confirmed in final data.

Exports in January tumbled by the most since the global financial crisis, in a clear indication that financial market turmoil and slowing emerging market economies have eroded demand abroad.

Under pressure from faltering global demand, total new orders from customers at home and overseas also changed direction and contracted, while job creation cooled to a five-month low.

Europe did not fare better, in a similar Markit PMI survey released yesterday.

Markit said its composite Purchasing Managers Index for the euro zone fell to 52.7, the lowest in more than a year, from 53.6.

In Germany, manufacturing took a hit from falling overseas demand, while the composite gauge for France signalled "sluggish" economic growth.

"Not only did the survey indicate the weakest pace of economic growth for just over a year, but deflationary forces intensified," said Markit chief economist Chris Williamson in London. The data "greatly increases the odds of more aggressive stimulus" from the European Central Bank (ECB).

The Organisation for Economic Cooperation and Development cut its forecasts for the euro zone last week, and ECB officials are reviewing whether their current stimulus programme is enough to counter global pressure.

Markit said euro zone economic growth this quarter may fall short of the 0.3 per cent seen at the end of last year.

Its German factory index fell to 50.2 this month, barely above the key 50 level that divides expansion from contraction.

REUTERS, BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on February 23, 2016, with the headline 'Factory activity falls sharply in Japan, Europe'. Print Edition | Subscribe