Workers in a Chinese factory

GLOBAL ROUNDUP: Chinese Manufacturing Deteriorates Sharply

July 1, 2016
In China, the Caixin PMI dropped to 48.6 in June from 49.2 in May. ... Euro-area manufacturing hits its highest mark in 2016. ... Russian manufacturing hits its highest mark since late 2014.

BEIJING — Activity in Chinese factories suffered its sharpest deterioration for four months in June, according to new figures Friday, as weak demand and industrial overcapacity weighed on the world’s second-largest economy.

The private Caixin Purchasing Mangers’ Index of manufacturing activity came in at 48.6 in June, down from 49.2 in May, the Chinese financial magazine said in a joint statement with data compiler Markit. It was also well off the median forecast of 49.2 in a Bloomberg News poll. The numbers are the latest to highlight a long-running growth slowdown in the country as the global outlook weakens.

Manufacturers shed jobs for the 32nd straight month, Caixin said, as they sought to cut costs in the face of a drop in new work. Overall economic conditions in the second quarter were “considerably weaker” than in the first quarter, Caixin’s Zhong Zhengsheng said.

“Against the backdrop of a turbulent external environment, and in order to avert a sharp economic decline, the government must strengthen its proactive fiscal policy while continuing to follow prudent monetary policy.”

China is a vital driver of global expansion, but its economy grew only 6.9% last year, its weakest rate in a quarter of a century.

The key manufacturing sector has been struggling for months in the face of sagging global demand for Chinese products and excess industrial capacity left over from the country’s infrastructure boom.

Euro-Area Manufacturing Grows at Fastest Pace in 2016

Euro-area manufacturing grew faster than initially estimated in June, recording its best performance this year.

A Purchasing Manufacturers’ Index rose to 52.8 from 51.5, slightly higher than the flash estimate of 52.6, Markit Economics said Friday. The results were collected prior to the result of Britain’s European Union referendum, which saw the country vote to leave the bloc. Eurostat said in a separate report that unemployment in the 19-nation region fell to 10.1% in May, the lowest in almost five years.

“Any Brexit impact is yet to be seen,” said Chris Williamson, chief economist at Markit. “It seems likely that business and consumer spending will be adversely affected across the euro area in the short term at least.”

The figures highlight the challenge facing policy makers as they try to assess the economic fallout from Britain’s decision to quit the EU. European Central Bank vice president Vitor Constancio said this week that while a relatively small trade impact could be magnified by a hit to confidence, the ECB still has the tools necessary to respond to any adverse consequences.

The only nation to show manufacturing in contraction — a reading below 50 — was France, which Markit said was likely due to strikes which have disrupted business in recent months. Greece enjoyed a “welcome return to growth,” Williamson said, with its best reading in more than two years.

Euro-area factory growth was led by Germany and Austria, and expansion also gathered pace in Spain, Ireland and Italy. Joblessness in May was the lowest in Malta, at 4.1%. Spanish unemployment fell below 20% for first time in six years.

Russian Manufacturing Gauge Returns to Growth

A gauge tracking Russia’s manufacturing industry jumped to the highest level since November 2014, topping economist forecasts as domestic demand powered gains in orders and output.

The Purchasing Manager’s Index surged to 51.5 in June from 49.6 in May, rising above the threshold of 50 that separates contraction from growth for the first time since last November, Markit Economics said Friday in a statement. That was better than every forecast in a Bloomberg survey of six economists, whose median estimate was was for an advance to 50.

“Russian manufacturers enjoyed one of their most prosperous months for almost two years,” Markit economist Samuel Agass said. “The rise stemmed from the domestic market only, as new export orders contracted further.”

Gains by manufacturers are increasingly diverging from the downturn among consumers, who’ve endured the brunt of Russia’s longest recession under President Vladimir Putin. While industrial production expanded for two months, domestic spending remains in distress after authorities responded to the collapse in oil prices by allowing the ruble to weaken.

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