Factory Growth Weakens

Factory Growth Weakens From China to Europe, U.S. (Update2)

By Simone Meier

July 1 (Bloomberg) -- Manufacturing growth from China to the euro region and the U.S. slowed in June, suggesting the global export-led recovery is losing strength.

In China, manufacturing growth slowed more than economists forecast, and a gauge of factory output in the 16-member euro region weakened for a second month, two surveys showed. The U.S. Institute for Supply Management’s manufacturing index fell more than economists forecast to 56.2 from 59.7 in May.

Asian, U.S. and European stocks fell on concern that a Chinese economic slowdown combined with deepening budget cuts from Spain to the U.K. may undermine the global recovery. While the Organization for Economic Cooperation and Development on May 26 raised its global growth forecast for this year, it said that a “boom-bust scenario cannot be ruled out” in some countries.

“We expect data to soften from here,” said Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London. “It’s going to raise some question marks about the outlook, about a double dip. It’s an environment with significant downside risks.”

The MSCI Asia Pacific Index dropped 1 percent today. The Euro STOXX 50 Index was down 1.4 percent at 3:01 p.m. in London. The Standard & Poor’s 500 Index has shed 4.2 percent over the past month, bringing its year-to-date decline to 8.1 percent.

The economy of the OECD’s 30 members will grow 2.7 percent this year instead of a previously projected 1.9 percent, the Paris-based group said on May 26. China may expand more than 11 percent this year compared with growth of 3.2 percent in the U.S. and 3 percent in Japan, according to the OECD. The euro- region economy may expand 1.2 percent, it said.

G-20 Statement

Limited demand in advanced economies has left the world reliant on emerging markets, led by China, to drive a recovery that Group of 20 leaders this week described as “uneven and fragile.” Signs of a slowdown as the Chinese government clamps down on property speculation and the effects of its stimulus package fade have unsettled investors.

Baosteel Group Corp., China’s second-biggest steelmaker, this week scaled back its growth plans, cutting its target for capacity in 2012 by 38 percent and forecasting a “bumpy, unpredictable and long” global recovery.

China’s economic growth will slow over the second half of this year, which is welcome news “given the slight uptick in inflation recently,” Stephen Roach, Morgan Stanley’s Asia chairman, said in Beijing yesterday. A pace of 8 percent or 9 percent would be “much more sustainable than the overheated growth rate in the first quarter,” he said.

ISM Index

In the U.S., the Tempe, Arizona-based ISM’s gauge dropped beyond the median forecast of 59 in a Bloomberg News survey of 81 economists. More Americans unexpectedly applied for jobless benefits last week, Labor Department figures showed today in Washington.

An index of U.K. manufacturing also declined last month. The gauge by Markit Economics dropped to 57.5 from a 15-year high of 58, signaling slower expansion.

Japan’s Tankan index of manufacturing sentiment climbed more than economists forecast. Bank of Japan board member Yoshihisa Morimoto said in Tokyo today that the economy has yet to achieve a “full-fledged” recovery and there are still “many risk factors” at home and abroad.

German Investors

In the euro region, a recovery is also showing signs of weakening. German investor confidence plunged in June and euro- region unemployment rose to 10.1 percent in April, the highest in almost 12 years. In France, consumer confidence weakened for a fifth straight month in June.

“Europe has shown signs of life,” Carl-Peter Forster, chief executive officer at Tata Motors Ltd., India’s largest truckmaker and owner of Jaguar, told Bloomberg Television in an interview yesterday. “The recovery is somewhat brittle.”

With households holding back spending and governments cutting budget deficits, European companies have been reliant on exports to boost earnings. The euro has shed 14 percent against the dollar this year, making goods more competitive abroad.

Siemens AG, Europe’s largest engineering company, on June 29 predicted “continued strong profitability” in its third quarter on reviving demand. Pirelli & C. SpA CEO Francesco Gori said on June 24 that the euro’s weakness against the dollar had a “moderately positive” impact on the Italian tiremaker’s second-quarter revenue.

An index of euro-area services, which will be released on July 5, probably declined to 55.4 in June from 56.2 in the previous month. A composite index of manufacturing and services probably fell to 56 from 56.4.