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Sharp China factory slowdown in August raises global growth fears

21 August 2015 06:30 pm - 0     - {{hitsCtrl.values.hits}}

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Worries of a deepening China economic slowdown intensified on Friday after a private survey showed the factory sector shrank at its fastest rate in almost 6-1/2-years in August, hammering global stocks and commodity prices.

The gloomy figure sent investors fleeing for cover in gold and bonds, fearing China’s sagging economy would translate into slower global growth and muddy the outlook for the timing of the first U.S. interest rate hike in nearly a decade.

World markets had already been on edge after China’s surprise devaluation of the yuan last week and a near-collapse in its stock markets in early summer.
“Uncertainty about China growth is now the main swing factor in markets,” said Tim Condon, an economist at ING Group in Singapore.

“Today’s data reinforced the doubts about global growth.”

The preliminary Caixin/Markit China Manufacturing Purchasing Managers’ Index (PMI) stood at 47.1 in August, well below a Reuters poll median of 47.7 and down from July’s final 47.8.

It was the worst reading since March 2009, in the depths of the global financial crisis, and the sixth straight one below the 50-point level, which separates growth in activity from contraction on a monthly basis.

The downdraft from China is rattling economies of its trade-reliant Asian neighbors and prompting many Western companies to reduce investments and look for ways to cut costs.

South Korea, which counts China as its biggest trading partner, said on Friday its exports slumped nearly 12 percent in the first 20 days of August from a year ago.

Taiwan reported on Thursday that its export orders in July fell more than expected, with a 14.1 percent slump in orders from China and smaller declines from Japan and Europe, leaving the United States as the lone bright spot.

While a similar factory survey in Japan pointed to a pick-up in activity there due to stronger domestic demand, policymakers in Tokyo are keenly aware of the dangers if China slows further.

Japanese Economics Minister Akira Amari said on Friday he expects China’s government to take steps to prevent its economic slowdown from becoming a global problem.

The flash PMIs are the earliest activity measure to be released on global economies each month, and are closely followed by investors. Similar surveys are due to be released in Europe and the United States later on Friday, and disappointing readings could spark further market mayhem. -REUTERS
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