October 3, 2011 / 6:20 PM / in 6 years

GLOBAL ECONOMY-Manufacturing shrinks for first time since 2009

 * Euro zone manufacturing contraction deepens
 * UK factories return to modest growth
 * China PMI ticks up but not convincingly
 * India data shows biggest monthly fall since Nov 2008
 * U.S. factory output grows, bucking global trend
 By Pedro da Costa and Jonathan Cable
 WASHINGTON/LONDON, Oct 3 (Reuters) - Global manufacturing
shrank for the first time in over two years in September,
reinforcing fears of another recession despite a modest bounce
in U.S. factory activity.
 Against the trend, manufacturing activity in the U.K. and
the U.S. picked up speed, but slumps in factory output in
Europe and Asia raised questions about the sustainability of
the rebound, given a forward-looking measure of demand in the
U.S. data still pointed to contraction.
 World stocks kicked off the final quarter of the year lower
on Monday, while the yen and government bonds rose, as the
manufacturing data and concerns about a possible Greek debt
default weighed on investor sentiment.
 "A recession in the global economy could cause a China hard
landing," Barclays Capital economists wrote in a note to
clients, adding that this was not their baseline forecast.
 The Global Manufacturing PMI, compiled by JPMorgan with
research and supply organisations, fell in September to 49.9
from 50.2 in August. It is the first time since June 2009 that
the index has fallen below the 50 mark that divides growth from
 STORY ON U.S. PMI:                          [US/NAPM1]
 STORY on euro zone PMI:                     [EUR/PMIM]
 STORY on British PMI:                        [GB/PMIM]
 STORY on India PMI:                    [ID:nI8E7K500V]
 STORY on Taiwan PMI:                   [ID:nT8E7K800T]
 STORY on Japan's tankan:               [ID:nL3E7KT1Q5]
 STORY on global PMI:                   [ID:nL5E7L337K]
 In Europe and Asia, factory activity dropped in September
to levels not seen since the depths of the financial crisis as
export demand dropped.
 Europe's leaders have so far managed to prevent the euro
zone debt crisis triggering a financial catastrophe, but data
point to worsening economic fortunes across the region.
 Markit's Eurozone Manufacturing Purchasing Managers Index
(PMI) which gauges changes in the activity of thousands of
factories in the countries that share the euro, fell to a final
reading of 48.5 in September from 49.0 in August.
 It is the second consecutive month the manufacturing PMI
has been below the 50 mark that divides contraction from
 "In a nutshell, the recession in the euro zone periphery's
manufacturing activity is weighing on the overall euro zone
index that -- in September -- suggests that the economy is not
growing in Q3," said Annalisa Piazza at Newedge.
 Mounting evidence of a weakening euro area economy prompted
some economists to predict the European Central Bank will cut
interest rates on Thursday, although most expect it to wait
until the new year before easing policy. [ECB/INT]
 Factory activity in Spain, struggling under harsh austerity
measures like much of the euro zone periphery, fell at the
fastest pace in more than two years, surveys showed on Monday.
 French manufacturers, meanwhile, saw activity decline for
the second month in a row. Even in Germany, the biggest and
arguably the most prosperous economy in the 17-nation bloc,
manufacturing growth effectively came to a standstill.
 But British manufacturing unexpectedly grew for the first
time in three months, although a slide in new export orders
highlighted the dangers facing the sluggish recovery.
 In China, the HSBC PMI for China's services sector rose to
53.0 in September, recovering from an all-time low of 50.6 in
August, lifted by new orders. [ID:nS7E7FQ01G]
 But even in China economists saw evidence of a cool-down.
China's factory activity typically rises in September as
businesses prepare for the Golden Week holiday, but this year's
increase was smaller than the average. The softness, along with
Europe's ongoing troubles, helped send copper prices to a
14-month low.
 India's manufacturing output recorded its biggest monthly
decline since late 2008, going from robust growth to near stall
speed in just five months and a fall in the new orders index
for the sixth straight month suggested more weakness ahead.
 Asia's export orders have fallen since midsummer as the
euro zone crisis intensified and the U.S. economy slowed. So
far, the data points to a moderate slowdown in China and
elsewhere in Asia, but another U.S. or European recession would
change the equation.
 In Japan, a similar report on Friday showed the
manufacturing sector contracted in September for the first time
in five months, suggesting its economy was back in the doldrums
after a short-lived earthquake-recovery boost.
 Japanese business sentiment recovered somewhat in the third
quarter, but a strong yen and Europe's debt crisis left
companies cautious about the outlook, the Bank of Japan's
quarterly tankan survey showed on Monday. [ID:nL3E7KT1Q5]
 U.S. factory output grew more quickly in September as
production and hiring increased, suggesting that manufacturing
would help keep the economy from slipping into a new recession.
 The Institute for Supply Management said its index of
national factory activity rose to 51.6 last month from 50.6 in
August, boosted by a rebound in production and increased
factory hiring. But new orders fell for third month.   
 "It's not a robust reading, due to concern about new
orders," said Bradley Holcomb, chair of the U.S. Institute of
Supply Management's business survey committee.
 (Additional reporting by Emily Kaiser in Singapore, Andy Bruce
in London, Yati Himatsingka in Bangalore, Leika Kihara and
Tetsushi Kajimoto in Tokyo, editing by Clive McKeef)

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