Global Economic Recovery Unlikely In Q4

 
on November 09 2012 11:31 PM
An auto manufacturing plant in China
An auto manufacturing plant in China Reuters

The global economy continues to recover at a subdued rate at the beginning of the fourth quarter with the growth in the service industries remaining undermined by the contraction in the manufacturing sector.

According to the data released this week by JPMorgan and Markit, the Global All Industry Output Index rose 51.3 in October, down from 52.4 in September.

"The start of the final quarter has seen global economic growth continue to track at a below long-run trend pace. A contracting manufacturing sector remains the main drag, while the larger service sector remains on a subdued expansion path. The trend in employment has also been volatile in recent months, as companies continue to assess future growth prospects," David Hensley, Director of Global Economics Coordination at JPMorgan, said.

While the U.S. is expected to perform relatively well, China is experiencing only a weak rebound and the euro zone is faced with the deepening economic crisis.

The Markit U.S. Manufacturing Purchasing Managers’ Index (PMI) rose in October to 51.3 from 51.1 in September, showing a modest improvement in the manufacturing business conditions. Significantly, a reading above 50 indicated that the manufacturing sector in the U.S. continued to expand in October.

Last month, it was reported that the HSBC PMI for China, a measure of the nationwide manufacturing activity, rose to 49.50 in October from 47.9 in September. However, since the PMI is below 50, it indicates that the manufacturing economy is declining. Meanwhile, according to the HSBC China Services PMI released earlier this week, the reading of the Services PMI, a measure of the service sector activity, fell to 53.50 in October down from 54.3 in September.

The Markit Euro Zone PMI Composite Output Index fell to 45.7 in October, down from 46.1 in September. In the euro zone, both the manufacturing and service sectors saw contraction in October. The ongoing economic crisis continued to impact negatively on the Spanish and the Italian manufacturing sectors in October.

“Both the French and German economies look likely to follow Spain and Italy into recession. The fall in composite index for the UK suggests the large rise in its GDP in third quarter, which was boosted by temporary factors, will be followed by a renewed contraction in fourth quarter,” Capital Economics said in a note.

Japan’s manufacturing activity contracted in October to an 18-month low, increasing the concerns about the slowdown in the economic growth of the world's third largest economy. According to the data released by Markit/JMMA last month, the headline PMI fell to 46.9 in October, down from 48 in September.

Overall, the latest PMIs indicate that there is no need to be highly optimistic about a strong global economic recovery in the fourth quarter. The economic condition could worsen with the continuing problems in the euro zone and the weakening global demand.

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