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Chinese woman at factory processes fabric doghouses

China Leads Slump in Asia Factories, Euro-Area Growth Cools

Jan. 2, 2019
A Chinese manufacturing gauge is signaling contraction for the first time since mid-2017.

Factory conditions across Asia’s most export-oriented economies slumped in December amid a U.S.-China trade war and a fading technology boom, while momentum in the euro region also weakened.

A Chinese manufacturing gauge is signaling contraction for the first time since mid-2017, while measures for Taiwan, Malaysia and export bellwether South Korea also point to declines in activity. Factory growth in the euro zone fell to the lowest in almost three years.

The disappointing numbers out of China sent stocks lower across Europe and Asia on Wednesday, the first full day of trading in 2019. U.S. equity futures tumbled.

Growth in the world’s largest economies is set to slow this year. Ongoing trade tensions between the U.S. and China are hurting demand across Asia’s manufacturing hubs and export-oriented European economies including Germany. Political uncertainty is weighing on confidence, while the U.S. government remains shut because of a budget fight over border security.

A gauge for U.S. factories is due at 9:45 a.m. Washington time. Five Federal Reserve indexes of regional manufacturing all slumped in December, the first time they’ve fallen in unison since May 2016. In the U.K., a factory gauge improved, though that was largely due to companies stockpiling for a potentially disruptive Brexit.

“The PMIs are signaling trouble ahead,” said Hak Bin Chua, an economist at Maybank Kim Eng Research Pte in Singapore. “There have been some healthy trade numbers in some countries, but this is probably short-lived.”

Bloomberg’s Global Trade Checkup is softening after an earlier rush to front-load export orders ahead of threatened tariffs. While President Donald Trump has signaled that negotiations with China are making progress, economists remain wary that the talks could stall ahead of a March 1 deadline.

European Central Bank President Mario Draghi identified protectionism as a prominent risk for the euro area in 2019 along with vulnerabilities in emerging economies and volatility in financial markets.

In Italy, manufacturing contracted for a third month in December, suggesting the country may succumb to yet another recession. The economy unexpectedly shrank in the third quarter.

“A disappointing December rounds off a year in which a manufacturing boom faded away to near stagnation,” Chris Williamson, chief business economist at IHS Markit, said of the trend in the euro area. “The undercurrent of weak demand and growing risk aversion evident across the surveys suggests that any rebound could prove modest at best.”

By Jana Randow

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Licensed content from Bloomberg, copyright 2016.

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