GLOBAL ECONOMY-U.S. chill hits Japan exports, Europe wavers

PARIS, April 23 Wed Apr 23, 2008 11:20am EDT

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PARIS, April 23 (Reuters) - Economic reports from Europe and Japan on Wednesday highlighted the damage a U.S. downturn could do to exporting nations and raised questions about the extent to which China and other fast developers can fill the void.

Japanese trade data for March illustrated both sides of that story and business surveys in Europe suggested manufacturers may be heading for a period of weaker global demand, with the euro's strength making it even harder to compete on price.

Japanese exports rose 2.3 percent in March compared with March 2007 but exports of cars and other goods to the United States dropped 11 percent, finance ministry data showed.

Exports to China and Asia broadly rose, but the rise was the smallest in three years, it said.

That provided little comfort to those who argue or hope that fast-growing emerging market economies will make up for at least a significant part of lost export demand from a U.S. economy which is now widely believed to be in the clutches of recession.

"Decelerating worldwide growth is taking a toll on Japan's exports gradually," said Hiroshi Shiraishi, economist at Lehman Brothers bank in Japan.

In Europe, business surveys regarded as the closest thing to real-time readouts of what is happening showed that new manufacturing orders, including export orders, shrank in the euro zone for the first time in three years.

The RBC/NTC Eurozone Purchasing Managers Index (PMI) for the manufacturing sector dropped to 50.8 in April, from 52.0 in March, its lowest since August 2005, while the gauges for new orders fell below 50, signalling contraction.

"So far, the manufacturing sector in the euro zone has proved remarkably resilient to the combination of strong euro and slower U.S. demand. This might have recently changed," said Gilles Moec, economist at Bank of America in London.

The euro, which hit a record high above $1.60 on Tuesday, is roughly 17 percent higher against the dollar than this time last year, before the U.S. housing slump and collapse of the subprime mortgage market there sparked a global credit squeeze.

SLOW SLIDE?

Bucking the gloom on the industrial side, a similar index for the services sector, which accounts for a larger share of total economic activity in developed economies, registered an acceleration in the pace of activity growth in April.

"The overall softening in economic activity in the euro zone is still very gradual," said Moec, who nonetheless highlighted the headache for central bankers when soaring inflation argues for higher interest rates but higher rates could hurt growth.

Food and energy price inflation is causing trouble across the world, sparking protests and riots in the poorer countries and increasing strains on household budgets everywhere.

In Asia, the latest reports on Wednesday showed inflation at its highest in 26 years in Singapore and in 17 years in Australia.

Indonesia and Vietnam raised inflation forecasts and the Philippine central bank said it would look at raising rates if commodity price rises began feeding into wages and other costs.

Polls conducted by Reuters and published on Wednesday showed economists are lowering their growth forecasts and raising their inflation forecasts for most of the world's big industrialised economies.

The U.S. poll, compiled from soundings of more than 100 economists, showed they had cut their forecasts for growth this year to 1.0 percent, from the 1.8 percent they were forecasting in January, and raised their inflation forecast to 2.4 from 2.2 percent.

The poll showed growth this year forecast at 1.5 percent in the euro zone, down from a January forecast of 1.8, while the prediction for inflation in 2008 jumped to 3.0 from 2.5 percent previously.

For the UK, the growth forecast was lowered to 1.7 percent from 1.9 and inflation raised to 2.6 from 2.3 in the previous Reuters polls in January. For Japan, the 2008 growth forecast was cut to 1.4 from 1.8 and inflation raised to 0.7 from 0.4 percent -- in the only major industrialised economy where deflation rather than inflation has been a problem. (Additional reporting by Leika Kihara in Tokyo, Nigel Davies in London; Editing by Ruth Pitchford)

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