BANGALORE/SYDNEY • The world economy lost momentum last month, with China's vast factory sector shrinking again and euro zone manufacturing growth weakening slightly, both casualties of waning global demand.
The latest business surveys across Asia and Europe paint a darkening picture and are likely to prompt more calls for central banks around the world to loosen monetary policy even further.
"The data probably increases the case for more stimulus in certain parts of the world, especially from the People's Bank of China and the European Central Bank (ECB)," said Mr Philip Shaw, economist at Investec in London.
"Those economies that are at less advanced paths of the recovery cycle - the key example is the euro zone, where we're looking at more disinflation - may well find more stimulus is in order."
Surveys of China's factory and services sectors showed the world's second-largest economy may be cooling more rapidly than earlier thought, with deeper job cuts.
Taken together with a stock market crash in Shanghai during the summer and a surprise devaluation of the Chinese yuan, the data highlights just how difficult it will be for policymakers to steer China's economy out of the biggest slowdown in decades.
"Two straight months of manu- facturing-sector contraction with a depressed equity market suggests China's third-quarter GDP growth is likely to have slowed to 6.4 per cent," economists at ANZ said.
The Chinese government is due to release third-quarter GDP data on Oct 19. It reported steady growth of 7 per cent in both the first two quarters of the year, a figure that many analysts and investors say is overstating the actual rate.
The official manufacturing Purchasing Managers' Index in China inched up to 49.8 last month from 49.7, but still suggested conditions were deteriorating.
A private survey focusing on small factories pointed to an even sharper cooldown.
Readings below 50 signal a contraction.
China is a major importer of raw materials, especially from commodity producers such as Australia, South Africa and Canada, and an exporter of finished goods. A slowdown there is likely to be felt in global economies already grappling with weak demand and lacklustre growth and inflation.
Its effects are already being felt by regional trade partners.
Japanese manufacturers saw a tumble in new export orders, South Korean exports fell for a ninth consecutive month and Taiwan warned that its economy shrank in the third quarter.
Indonesian factory owners cut payrolls at the second-fastest rate in at least four years, while activity in Vietnam fell for the first time in two years. Even Indian factories, which are more insulated from global trends, posted their slowest expansion in seven months.
Concerns over China and global market volatility figured high on a list of reasons the US Federal Reserve did not raise interest rates last month.
In the euro zone, where the central bank is six months into a €1.1 trillion (S$1.8 trillion) asset purchase programme, inflation dipped below zero again last month, an early estimate showed on Wednesday.
Combined with the PMI survey data that showed factory growth weakened slightly last month, with slowing new orders and output, that is likely to prompt the ECB to expand its stimulus programme.
Markit's final manufacturing PMI was 52.0 last month, lower than August's 52.3. An index measuring output that feeds into a composite PMI, due on Monday and seen as a good guide to growth, fell to 53.4 from 53.9.
ECB policymakers have hinted the €60 billion a month bond- buying scheme could be enhanced in size or duration if inflation is seen missing its goal of near 2 per cent even by 2017.