July 2, 2012 / 11:21 AM / 7 years ago

GLOBAL ECONOMY-European, Asian factories dealt another blow

* Euro zone manufacturing PMI holds at 2-1/2-year low in June

* Exports orders falling in China, Japan, Korea, Taiwan

* PMIs fall across Asia to multi-month lows, except India

* British manufacturing contracts for second straight month

By Koh Gui Qing and Yati Himatsingka

LONDON/BEIJING, July 2 (Reuters) - Euro zone manufacturing took another hefty blow in June while China and Japan, Asia’s biggest exporters, were hit by crumbling orders from abroad, intensifying worries that the global economy is deteriorating.

Business surveys released on Monday, covering thousands of factories across the world, showed activity in Chinese and Japanese manufacturers hitting seven-month lows, and signaled that worse may be yet to come for euro zone companies.

Released on the heels of a European Union summit in which leaders agreed to help Spain and Italy borrow more affordably, the purchasing managers indexes (PMIs) highlighted the challenge policymakers face to restore the euro zone’s economic fortunes.

The PMIs added weight to expectations that the European Central Bank will ease monetary policy on Thursday by cutting interest rates 25 basis points, to a record low of 0.75 percent.

U.S. data due at 1400 GMT is also expected to show growth of activity among American manufacturers slowed in June.

“There is no doubt that there are common driving factors now in the global slowdown and the euro area is probably the most dominant one,” said Jeavon Lolay, global economist at Lloyds Banking Group.

“It is hitting confidence, it is hitting exports and it is probably hitting credit as well and bank lending.”

Markit’s Eurozone Manufacturing Purchasing Managers’ Index (PMI) was unchanged at 45.1 in June, above the preliminary reading of 44.8 and holding at its lowest reading since June 2009, well below the 50 mark that signals growth.

Manufacturing activity in Germany and Spain contracted at the fastest pace in almost three years, and while French and Italian PMIs rose slightly, they were still below the 50 mark.

Britain’s manufacturing sector contracted for the second straight month, albeit at a slower pace, doing little to alter expectations the Bank of England will pump more cash into the struggling economy.

Economists expect the U.S. ISM manufacturing survey, another PMI, to fall to 52.0 in June from 53.5 in May.


Europe’s economic ailments left Asian factories, which rely heavily on demand from rich Western states, reeling in June.

In addition to slowing growth in China and Japan, the PMIs for South Korea and Taiwan showed their manufacturing sectors contracting for the first time in five months.

In India, where the economy is more reliant on domestic activity, the factory sector picked up in June. But its new export orders growth was the weakest in seven months.

Monday’s HSBC Chinese factory PMI showed factory activity shrank at its fastest pace in seven months in June. The index slipped to 48.2 from May’s 48.4.

“The further decline in the output, new orders, new export orders components suggests that the China economy still faces downside risks in the near term,” said Haibin Zhu, a JPMorgan economist in Hong Kong.

He said he expected Beijing to further ease monetary policy in the months ahead.

The run of weak data suggested no immediate pick-up for the world’s second-biggest economy, a story that is similar in Japan, home to big-brand exporters, such as camera and printer maker Canon Inc, which earns about 80 percent of its revenues abroad.

Japan’s June PMI, released on Friday, slipped to 49.9, below the growth watermark of 50. Its index for new export orders dropped to 47.5, the sharpest pace of contraction since February.

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