(Reuters) - The world economy faces a worse situation than in 2008 and stimulating growth is the top priority, a Chinese official said on Thursday, as data showed slumping export demand stalled manufacturing in some of Asia's biggest economies.
China's official purchasing managers' index (PMI) showed factory activity shrank in November for the first time in nearly three years, while growth in India's sector slowed down.
Figures later on Thursday are expected to show that manufacturing continued to shrink in the euro zone, reinforcing the view the debt-strapped region is in recession, while activity in the United States picked up modestly.
Zhu Guangyao, China's sherpa to the Group of 20 talks and also a vice finance minister, said heavily indebted countries had limited scope to act now, which will make it harder to sustain global growth as the European debt saga drags on.
"The current crisis, to some extent, is more serious and challenging than the international financial crisis following the fall of Lehman Brothers," Zhu said.
"It's keenly important for countries around the world to work together in the sprit of 'co-operating in the same boat'," he added.
After the Lehman bankruptcy, G20 countries committed trillions of dollars to boosting growth and backstopping banks, and central banks cut interest rates to record lows.
But rates are still near zero in the United States, Japan and Britain, and public finances have deteriorated around the world, leaving less policy space to counter a European downdraft.
Fast-growing emerging markets such as China, Brazil and India led the recovery in 2009, and they are still growing far more rapidly than most developed economies, but they are not immune to weak demand from Europe or the United States.
China's official purchasing managers' index for November fell to 49, dipping below the 50 mark that separates growth from contraction for the first time in nearly three years. New export orders tumbled to 45.6, the lowest level since February 2009, from October's 48.6.
Despite the disappointingly weak data, Asia's stock markets rallied to a two-week high, after the world's six major central banks said they would lower the cost of dollar swap lines to try to lessen a liquidity crunch afflicting European banks.
The weaker-than-expected China PMI reading came one day after Beijing lowered banks' reserve requirements by 50 basis points to try to ease credit strains.
Most economists thought China would hold off on easing credit conditions until December or perhaps early 2012, so the early policy shift suggested increasing concerns about sustaining growth.
"It's time to start reflating China's economy," said Qu Hongbin, co-head of Asian economics research at HSBC.
An HSBC PMI on China also showed manufacturing activity shrank in November as new orders fell. The index dropped to 47.7 from 51 in October, which Qu said marked a "sharp deterioration in business conditions".
He predicted China's central bank would cut another 1.5 percentage points off of reserve requirements by mid-2012, and said the European debt crisis along with China's weakening property market would "only add to downside pressure on growth."
Reserve requirements for big banks stand at 21 percent.
Just a few months ago, inflation was the primary concern for most of Asia's economies. But Europe is the top export destination for many countries including China, so when its crisis intensified, Asia's growth prospects dimmed.
In Taiwan, an export powerhouse with heavy exposure to both the advanced economies and China, November's PMI showed a sixth straight month of factory-sector contraction as new orders fell.
Taiwan outlined plans to try to insulate its economy from global shocks, although it gave few specifics. It said it would stabilize the financial system, monitor inflation, and boost exports and consumption.
In a sign of rising unease over the state of the world economy, Taiwan also said the central bank and government plan to meet at least weekly to assess how Europe and the United States are affecting the domestic economy.
South Korea's factory activity shrank for a fourth consecutive month. Its November exports rose faster than expected, although many economists think that won't last because export orders weakened.
In Indonesia, year-on-year export growth slowed in October to 16.7 percent, well below economists' forecast for 22.7 percent and barely one-third of the growth rate recorded in September.
India bucked the trend, reporting a pick-up in export orders, although its overall PMI dipped on weak domestic demand.
'MANY FACTORIES WILL GO BANKRUPT'
In China, slowing demand is already taking a toll on manufacturers, and conditions could worsen if troubles deepen in Europe or the United States, China's two biggest export markets.
Wu Zongjun, the boss at Yiwu Lianfa clothing factory in Yiwu, about 250 kilometers (156 miles) south of Shanghai, said slow demand made this the most difficult business environment he has seen in more than two decades.
He was closing down a month early for the annual Chinese New Year holiday, and said many other textile factories in the area were doing the same.
"Many factories will go bankrupt, and workers will have a hard time finding jobs when they come back next year," he said.