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Factory data setback for major economies

New York, April 24, 2013

Major economies in North America, Europe and Asia lost some momentum this month, business surveys showed, a development that may see central banks intensify efforts to revive a flagging global recovery.

China and Germany, the world's biggest exporters, both lost a step in April. Growth in Chinese factories slowed to a crawl as export demand dwindled, while the euro zone's largest economy saw business activity decline for the first time in five months.

US manufacturing grew at its most sluggish pace in six months as domestic demand dried up, suggesting the world's biggest economy started to lose ground in the second quarter.

The US data "will obviously add significantly to concerns, most recently related to the softer China and German data, that another seasonal slowdown in the global economy is taking hold," said Alan Ruskin, Deutsche Bank's head of G10 currency strategy.

More than three years after the global recession, sluggish activity in rich and poor countries has confounded policymakers who have tried mightily to kick-start growth.

The International Monetary Fund this month trimmed its global growth forecast to 3.3 per cent, leaving it on par with the 3.2pc rate recorded in 2012.

Slower global growth and falling commodity prices are likely to quash inflation fears and speculation that the Federal Reserve will start tapering its $85 billion monthly asset purchases any time soon.

The Bank of Japan, hoping to end decades of stagnation, this month began an aggressive stimulus programme that will pump $1.4 trillion into its economy in less than two years.

But policymakers are also scrambling for new ideas.

Finance officials from the world's biggest economies have started to edge away from a drive to revive growth through large cuts to bloated budget deficits, an unpopular policy that European Commission president Jose Manuel Barroso said had reached its limits.

Governments in many the euro zone's peripheral countries with high debt burdens and slow growth, have prescribed the bitter medicine of steep budget cuts and higher taxes to shore up public finances, but that has made it harder to grow and unemployment has risen.

April data showed even Germany, among the healthiest of Europe's economies, was feeling the pinch.

Financial data firm data vendor Markit said its preliminary services PMI for Germany, measuring growth in companies ranging from hotels to banks, fell to 49.2 in April from 50.9 the previous month.

The unexpected decline added a new dimension to next week's European Central Bank meeting, which some analysts expect will deliver an interest rate cut.

"With Germany unable to offset the austerity and credit crunch drag on growth in the (weaker euro zone states), and with excess capacity growing and business expectations falling, the only question is why the European Central Bank has not cut rates already," said Lena Komileva, director of G+ Economics.

Chris Williamson, chief economist at Markit, said the data may signal a renewed downturn for Germany in the second quarter. The US economy may also be facing a similar loss of momentum. – TradeArabia News Service




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