* Euro zone factory sector shrinks for first time in 2 yrs
* Asian manufacturers struggling
* New orders sink as economies feel the strain
(Adds market reaction)
By Jonathan Cable and Emily Kaiser
LONDON/SINGAPORE, Sept 1 Factory activity
worldwide stalled last month as new orders tumbled, heightening
fears that the global economy may be heading for another
recession and driving stock markets lower.
Surveys of company purchasing managers showed manufacturing
contracted in the euro zone for the first time in almost two
years in August, echoing earlier data from South Korea and
Taiwan where new export orders fell sharply.
Britain's manufacturing sector shrank at its fastest pace in
over two years, hurt by a sharp drop in demand for exports, and
figures due at 1400 GMT are expected to show factory activity
declined in the United States for the first time since the
And although China's official PMI increased slightly, its
first rise since March, it also showed the effects of slowing
demand in Europe and the United States.
HSBC's PMI figure for China, which relies more heavily on
private companies than the large state-owned enterprises that
dominate the government's PMI report, showed growth in factory
activity, while still rapid, was slowing.
"The key thing they show is that we are not out of the
woods. The economies are very vulnerable to any shock which at
this moment in time there are a few of," said Jeavon Lolay at
Lloyds Banking Group.
"What is happening in the euro zone is very important and in
the US growth has weakened markedly in the last two quarters.
There is a risk of a return to recession."
The data saw financial markets kick off September in a grim
mood, prompting a sell-off of European assets and leaving Wall
Street set to open with losses.
Markit's Eurozone Manufacturing PMI fell to 49.0 in August
from 50.4 in July, revised down from a preliminary 49.7, the
first time since September 2009 that the index for the sector,
which drove a large part of the bloc's recovery, has fallen
below the 50 mark that divides growth from contraction.
In a worrying sign for policymakers, the slowdown appears to
be spreading. German factories, which have been supporting
growth in the bloc, eased off the accelerator and French
manufacturing contracted for the first time since July 2009.
The German economy grew just 0.1 percent in the second
quarter, far slower than the 1.3 percent growth seen in the
first three months of the year, figures released on Thursday
showed, adding to evidence the outlook for Europe's largest
Euro zone leaders have been battling to prevent a debt
crisis spreading from periphery members to some of the bloc's
bigger economies while the U.S. has been fighting its own demons
of sluggish growth and impending tough austerity measures.
"The West's deteriorating growth outlook is becoming an
increasingly heavy burden to bear," said Donna Kwok, an
economist with HSBC, which sponsors PMI reports in many Asian
Weak growth in the U.S. and Europe has revived worries they
will slip back into recession, which would deal a heavy blow to
Asia's export-driven economies.
Most advanced economies have already cut interest rates to
near zero, and with government finances constrained,
policymakers have limited options for spurring stronger growth.
The European Central Bank, the U.S. Federal Reserve and the
Bank of England are all seen retaining their ultra-loose
monetary policy for at least another year.
So that leaves the big emerging economies as the best hope
for propping up global growth but they are also struggling.
Brazil's central bank slashed its key interest rate to 12
percent from 12.5 percent on Wednesday in a shock decision that
it said reflects a mounting global slowdown as well as weaker
growth in Latin America's largest economy.
While HSBC's China PMI rose to 49.9 last month it still
pointed to slower growth and Taiwan's dropped to 45.2, the
lowest reading since January 2009, the middle of the global
financial crisis that crushed world trade.
"Asian growth is set to slow more sharply than most expect
over the coming months," Credit Suisse economist Robert
Prior-Wandesforde wrote in a note to clients.
ORDERS DRY UP
The outlook is far from rosy as new orders in the euro zone
fell for the third straight month. The sub-index fell to 46.0,
down from the preliminary 46.9 reading and much lower than
Switzerland, outside the 17-nation euro zone, said on
Thursday its economy grew at its slowest pace since 2009, as a
record strong Swiss franc also bites into exports.
China's new export orders index dropped to 48.3 from July's
50.4 and Beijing pinned the blame at least partly on the debt
crises in advanced economies. The National Bureau of Statistics
said the export sector was "facing challenges".
Taiwan saw a sharp decrease in new export orders,
particularly from Europe, while in South Korea the sub-index
fell to a seasonally adjusted 48.86 from 52.13 , coming below
the neutral point for the first time since October last year.
(Editing by Anna Willard)