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 China's vast factory sector shrank at its fastest rate in
6-1/2-years in September, a private survey showed, sending investors
worried about sagging global growth scurrying out of risky assets.
Reacting to the data, Asian stocks posted their biggest single-day
fall in a month on Wednesday.
Similar surveys, due later on Wednesday, are likely to show the U.S.
economy lost some steam in September even with the Federal Reserve
holding fire on interest rates.
"There is substantial concern at present that global demand weakness
is dampening the economy in the industrial countries," said Jorg
Kramer, chief economist at Commerzbank.
The preliminary Caixin/Markit China Manufacturing Purchasing
Managers Index fell to 47.0 in September, the worst since March
2009, missing expectations for 47.5 and slipping from August's 47.3.
Levels below 50 signify a contraction.
It was the seventh straight month of contraction for the
manufacturing sector and the survey showed business conditions
deteriorating almost across the board, as firms slashed output,
prices and jobs at a faster pace as orders fell.
The data underline the malaise in the world's second largest economy
and just how difficult it will be for policymakers to steer the
economy out of the biggest downturn in decades.
Last month, Beijing devalued the currency to support exports and
boost growth, currently at 7 percent.
But that move was seen by investors as official endorsement of a
slowing economy. A global financial market rout, notably in Chinese
stocks, followed and forced the central bank to cut interest rates
again, the fifth time since November.
China is a major importer of raw materials, especially from
Australia, South Africa and Canada, and exporter of finished goods.
A slowdown there will ring out across the world, denting demand and
souring business sentiment. Last week, it figured high on a list of
reasons the Fed had for not raising interest rates in the United
States for the first time in almost a decade.
Sentiment at Asia's biggest companies tumbled at a record pace in
the third quarter on worries about China and the risks it poses to
global growth, a Thomson Reuters/INSEAD survey showed.
There are signs dwindling demand from Asia, led by China, is
starting to hurt businesses in the euro zone, according to PMI
survey compilers Markit.
Private business growth in the currency bloc slowed this month as
Asian demand weakened, leading to fewer new jobs and forcing
factories to reduce output.
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The Composite Flash PMI for the bloc came in at 53.9 in September
against predictions of a dip to 54.1, down from 54.3 last month.
Markit said the PMIs point to third quarter growth of 0.4 percent.
"It is hard to see euro zone growth really kicking on," said Howard
Archer at IHS Global Insight.
"There is the very real risk that slowing growth in emerging markets
like China not only hits euro zone exports but also has a negative
impact on business sentiment and leads to a scaling back of
investment and employment plans."
The big upside from the data, however, was that the dominant service
industry was able to charge higher prices for the first time in four
years.
That will be welcome news for the European Central Bank that is
struggling to get inflation close to its target of just below 2
percent even after six months of stimulus. Inflation was a meager
0.1 percent in August.
Speculation the ECB will expand its 60 billion euros a month
quantitative easing program has mounted recently and several
policymakers have indicated the central bank stood ready to act if
inflation dipped or failed to rise as swiftly as expected.
"Growth is too slow to generate inflation and given the likelihood
of a slowdown to come, the ECB should still up the pace of its
quantitative easing program," said Jennifer McKeown at Capital
Economics.
Testimony on Wednesday afternoon from ECB President Mario Draghi
could give an indication of how close the bank is to acting.
Business activity in Germany, the euro zone's number one economy
slowed slightly in September while activity rebounded in France as
manufacturing output swung back to growth after two consecutive
months of decline.
(Editing by Toby Chopra)
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