* Spreading euro crisis plagues global economies
* Euro zone factory PMI hits 44.0, lowest since June 2009
* China official PMI slips to 50.1, eight-month low
* Hopes fading for dramatic central bank action this week
By Jonathan Cable and Lucy Hornby
LONDON/BEIJING, Aug 1 Euro zone manufacturing
took another turn for the worse last month as output plummeted,
hammering home the scale of the region's economic crisis which
also depressed export orders from factories in China and India.
Surveys of thousands of factories across the world released
on Wednesday showed activity in the 17-nation euro zone
contracted for the eleventh straight month in July as a downturn
that began in the periphery sinks deeper roots into the core.
The manufacturing slump worsened in Italy, Spain and Greece,
but also in the region's two biggest economies France and
Germany, the purchasing managers indexes (PMIs) showed.
Britain's PMI plummeted to a more than three-year low.
In Asia's biggest economies China and India, which until
recently had appeared more resilient to the effects of recession
in Europe and disappointing growth in the United States, export
orders were weak and output stalled.
"The euro zone continues to struggle with the debt crisis,
while the world economy is slowing down. This last piece of
information should give policymakers food for thought," said
Peter Vanden Houte at ING.
But there was plenty of doubt over how much major non-Asian
central banks meeting this week - the U.S. Federal Reserve, the
European Central Bank and the Bank of England - will or can do
to turn the tide.
Expectations are running high for another round of money
printing from the Fed, although it probably will not happen
until next month.
The ECB may fall short of lofty market hopes at its meeting
this week, with insiders telling Reuters bold policy action
could be weeks away, while the BoE is already in
the middle of a money printing campaign it just increased to 375
But in the meantime most of Europe's economies are sinking.
Markit's Eurozone Purchasing Managers' Index (PMI) for the
manufacturing sector fell to 44.0, well below the 50 level that
divides growth from contraction. The reading was the lowest
since June 2009, below the flash reading of 44.1 and June's
The output index sank to 43.4, the lowest since May 2009,
also revised down from 43.6 and down from 44.7 in June. Markit
said this pointed to production falling at a quarterly rate of
more than 1 percent.
Across the channel in Britain, the manufacturing sector
shrank at its fastest rate in more than three years, dealing a
blow to hopes the country may come out of recession over the
summer as it hosts the Olympic Games.
In the U.S., the Institute of Supply Management is expected
to report later on Wednesday that its gauge of manufacturing
popped back up above 50 in July after slipping to 49.7 in June
on a slump in new orders.
Spain, which slid deeper into recession in the second
quarter, saw the 15th straight month of contraction, while Italy
chalked up a year in negative territory.
The PMI for Greece, where the debt crisis began, has been
below 50 since September 2009. Even in once-booming Turkey,
manufacturing activity contracted for the first time in four
The only bright spot was Ireland. It was the only euro zone
country to show signs of emerging from the downturn, with its
PMI above 50 for a fifth straight month.
WEAK ACTIVITY ACROSS ASIA
China's official factory PMI fell to an eight-month low of
50.1 in July. The HSBC China PMI rose to 49.3, its highest level
since February, but it was the ninth straight month below 50.
Analysts drew some comfort from the slight improvement in
the HSBC China PMI, which focuses on smaller private enterprises
while the official PMI primarily covers big state companies.
Unlike central banks in developed economies, China also has
plenty of room to cut interest rates.
"The low inflation environment should allow Chinese
authorities to provide further stimulus in coming months," said
Craig James, economist at Commsec in Sydney.
Ten of China's 11 major sub-indexes in the official PMI were
under 50, showing just how much the economy is struggling to
revive its momentum, with little evidence of measures aimed at
boosting domestic demand taking quick effect.
China, the world's second largest economy, faces a sensitive
few months with a leadership succession looming later this year
for the ruling Communist Party.
President Hu Jintao was quoted on Tuesday as saying fiscal
and monetary policy support for the economy would be stepped up
in the second half, while Premier Wen Jiabao spoke of policy
fine-tuning and signs that the economy was stabilising, after
growth slowed to its slowest pace in more than three years in
the second quarter.
Manufacturing looked weak across Asia. Activity in South
Korea shrank by the most in seven months, Taiwan contracted
again and factories in India, Asia's third-largest economy,
showed the sharpest one-month drop in growth since September.