In Germany, the economic powerhouse of the eurozone, manufacturing output is now contracting at its fastest pace for three years, the result of flagging demand from both Europe and China. Outside the eurozone, the UK has not been spared. The latest Markit/Cips purchasing managers’ index shows manufacturing shrank at its fastest pace since 2009.
China’s slowdown also worsened in May as its factories registered a further deterioration in demand at home and abroad. Economic growth is expected to fall to 7.9 per cent in the second quarter, the first dip below 8 per cent since 2009.
The rot has spread to India, Asia’s third-largest economy. Growth has slumped to its lowest rate in nine years – an annualised 5.3 per cent against 9.2 per cent a year ago. The slowdown is concentrated in the manufacturing sector, which has shrunk 0.3 per cent on year. Standard & Poor’s has cut India’s credit outlook to negative.
And in South America, Brazil’s consumer-led growth model is faltering. Consumer indebtedness is high and car sales fell 11 per cent in April. Economic growth is likely to be less than 3 per cent in 2012.
However, the shock news yesterday was that the US economy added a mere 69,000 (net) jobs in May, half the number forecast. This is the third disappointing month in a row, suggesting activity in the American labour market has stalled. The jobs figure for April was also revised down sharply, from 115,000 to 77,000.
As a result, US unemployment has gone up to 8.2 per cent – not what president Barack Obama wanted to see. When he took office in January 2009, the rate was 7.8 per cent. His Republican opponent in the November election, Mitt Romney, has pledged to lower unemployment to 6 per cent.
Until now, the world has been hoping a US recovery might help compensate for the downturn in Europe and weaker Chinese growth. There was sense in this view because, unlike the UK and eurozone, America has an expansionary fiscal policy. However, it now appears that US companies have put a brake on hiring till they see where the euro crisis is going.
The pressure is on the politicians to make a collective response, possibly at this month’s G20 summit in Mexico. Expect global diplomatic fingers to be pointed at Mrs Austerity herself, Germany’s Angela Merkel. Unless Germany expands domestic demand, the European economy will continue to flounder, taking with it international business confidence. If Merkel stands firm, her CDU party faces meltdown in next year’s federal elections.
Merkel’s only real partner in austerity, the UK, will also be under pressure to ease its fiscal corset. Surely, as Chancellor George Osborne is making a habit of reversing his Budget decisions, that should not be impossible?
Chairwoman celebrates six decades at the top
THIS weekend sees a variety of public events to celebrate Elizabeth Windsor’s unprecedented 60 years as chairwoman of the board of UK Plc.
Never tempted to grab the chief executive’s post as well, she has worked harmoniously with most of the 12 CEOs during her time, apart from the one woman to hold the post.
In those six decades, Mrs Windor has seen the output of UK Plc quadruple, though the workforce is only a fifth larger. The product range has diversified successfully from manufacturing to services, though a recent venture into investment banking has reduced profits substantially.
Analysts point to the company’s current large debts, of around 64 per cent of revenues, which compares unfavourably with 36 per cent in 1952. If other off-balance sheet liabilities are included, the net debt figure is nearer 150 per cent of revenues. Suggestions of takeover bid by Euro Holdings AG therefore seem premature.
Latest news: managers at the Scotland Ltd subsidiary are trying to negotiate a buyout, which if successful could affect oil revenues. Mrs Windsor is known to be grooming her successor, a noted environmentalist, but she has no plans for retirement. Most brokers recommend “hold”.