Factories chained by trade wars, demand faltering in August

LONDON/TOKYO: The bitter trade war between China and the United States remained global manufacturing activity Largely declining in August, they showed business surveys, which strengthens the case of policy makers to unleash new stimuli to defend against recession risks.

In a new escalation of the trade dispute, the United States began imposing 15% tariffs on a variety of Chinese products on Sunday. China corresponded with new tariffs on US crude oil, raising fears of a global economic slowdown.

A continuous decline in the power of Germany, which depends on exports from the euro zone, meant that manufacturing activity in the block contracted for the seventh month in August, reinforcing expectations that the European Central Bank will relieve monetary policy next week.

IHS Markit's final manufacturing purchasing index (PMI) for August was 47.0, coinciding with a previous flash reading but well below level 50 that separates the growth from contraction.

Although it was an improvement in July, that month's reading was the lowest in the euro zone since December 2012.

On a positive point, since it depends less on exports than other euro zone countries, the economy of France has so far proved more impervious to a slowdown and manufacturing activity returned to growth as manufacturers saw production increase and customer demand.

Manufacturing in Britain, shaken by the deepening of the Brexit crisis and the global recession, contracted last month at the fastest pace in seven years.

The big picture is that manufacturing is on the way to contracting for the second consecutive quarter, and a significant recovery is unlikely due to the continuing struggles of global manufacturing, said Andrew Wishart, an economist at Capital Economics.

And while the equivalent of the euro zone increased, it indicates that the manufacturing production of the block continues to contract.

A similar survey to be conducted later in the United States is expected to show a slowdown in manufacturing growth in the world's largest economy.

But in a surprising development, China's manufacturing activity expanded as production increased, a private sector PMI showed, although orders remained weak and business confidence faltered.

According to Monday's data, market sentiment remained fragile and, although European stocks rose cautiously, driven by a surge in miners, the euro fell 0.05% to $ 1,0985, not far from a Two-year minimum of $ 1.0963 reached in US commerce on Friday.

Asian strain

South Korea, Japan and Taiwan, dependent on exports, saw factory activity diminish, underlining the growing pain of the tariff war between the two largest economies in the world.

The broader image of Asian exports remains very weak due to the impact of the US-China trade war, which continues to escalate, said Rajiv Biswas, chief Asia Pacific economist at IHS Markit.

In China, the Caixin/Markit manufacturing PMI for August rose to a maximum of five months from 50.4 from 49.9 in July, exceeding an average market forecast.

The reading followed the official Beijing PMI which showed that manufacturing activity contracted in August for the fourth consecutive month, pointing to a further slowdown in the world's second largest economy.

India, an Asian economic power, experienced the slowest expansion in its manufacturing sector in 15 months as demand and production grew at its weakest pace in a year.

Friday's data showed that India's economic growth reached a minimum of 6 years in April-June, increasing the chances of the central bank reducing interest rates further at its next meeting.

Elsewhere, Japanese manufacturing activity fell for the fourth consecutive month, which underscores a dark outlook for the third largest economy in the world.

While Japan's exports fell for the eighth month in July due to the fall in sales to China, the economy has so far experienced steady growth thanks to strong domestic demand.

But there are indications that the economy may begin to lose support for consumption and capital expenditure.

Manufacturers surveyed in PMI data said that the end of an increase in construction before the Tokyo 2020 Olympics and a scheduled increase in sales tax in October is expected to hurt production volumes in the coming months.

Any additional signs of weakness in domestic demand could increase the pressure on the Bank of Japan to increase the stimulus in its revision of rates from September 18 to 19, which follows the last policy decision of the ECB and that of the Federal Reserve from United States.

The trade war between the United States and China is increasing and we are also seeing tensions between Washington and Europe rise, which could make the world economy falter, said Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities.

Japan may fall into a recession at the time the sales tax increase takes effect, he added.

South Korea's manufacturing activity also declined as manufacturers felt pressure not only from the US-China trade war, but also from a growing diplomatic dispute with Japan, which strengthened the case of an additional policy of Flexibility by the central bank of the country, after a surprising cut in interest rates in July.