Weak factory activity threatens global growth

London/Hong Kong - China gauge shrinks most in almost 3 years as new orders slump further and output falls

Factory activity was at its weakest in years across much of the world during January, adding to worries trade tariffs, political uncertainty and cooling demand poses an increasing threat to global growth.
Weak Purchasing Managers Index (PMI) readings reinforce expectations central banks will put any further interest rate hikes on hold this year and fuel expectations a global economic slowdown is underway, as highlighted in a Reuters poll last month.
Trade-focused Asia appears to be suffering the most visible loss of momentum so far, with activity shrinking in China, although European economies are stuck in low gear and many emerging markets are sputtering.
The eurozone has been rocked by protests in France, an auto sector struggling to regain momentum, political strife and rising trade protectionism. Manufacturing growth in the bloc was minimal last month, at a four-year low, and forward looking indicators suggest there will be no turnaround soon.
Germany's manufacturing sector contracted for the first time in more than four years as Europe's powerhouse was hit by trade tensions although activity in France rebounded, helped by jobs growth. British factories are scrambling to stockpile goods at the fastest rate since records began in the early 1990s as they brace for a potentially chaotic Brexit in less than two months' time. Yet growth was weaker than expected and optimism waned.
"Unfortunately, the situation still looks set to get worse first. We have to brace ourselves for an ongoing string of weak economic data driven by, but not confined to, much weaker global trade," said Holger Schmieding, chief economist at Berenberg.
On Wednesday, the US Federal Reserve signalled its three-year-drive to tighten monetary policy may be at an end amid a suddenly cloudy outlook for the US economy. In some countries there is even chatter about potential rate cuts.
China's factory activity shrank the most in almost three years in January as new orders slumped further and output fell, the private Caixin/Markit PMI survey showed. The numbers were weaker than Thursday's official PMI survey, but both suggested the economy is continuing to slow.
Japan's factory activity was the slowest in 29 months, with weakening exports and output suggesting it could soon fall into contraction. Manufacturers in the world's No.3 economy are facing both falling exports and a likely slump in domestic demand when the country's sales tax is hiked in October.
But not all PMI surveys were gloomy. In India, which relies more on domestic demand, factory activity accelerated. And it was still in moderate expansion territory in Vietnam, Philippines and Thailand.