World economic slowdown

US cuts and manufacturing slowdown fuel growth fears

A contraction in European and UK manufacturing and an easing in China is fuelling fears for the world economy just as America embarks on government spending cuts.

the Telegraph,

1 March, 2013

The pace of manufacturing expansion softened in China, while it contracted in Europe and in Britain, according to new surveys.

The blitz of data drove the FTSE 100 down 0.6pc to 6,324.86, triggered selling across European bourses and sent the pound below the $1.50 mark for the first time since 2010.

While traders sold in Europe, President Barack Obama and Republicans met in Washington in a bid to delay or avert $85bn in government spending cuts - known in the US as the sequester - that are due to start today.

In the absence of growth across Europe and in Britain, investors fear that spending cuts in America could hobble a recovery in the world's largest economy.

That concern was sharpened after separate figures showed incomes in the US tumbled by 3.6pc in January. "The weakness in income is very troubling," said Chris Low, an economist at FTN Financial. The "sequester is a big deal."

As traders tracked the talks in Washington, there was little encouragement to be taken from most of the manufacturing surveys.

In Britain, activity unexpectedly contracted in February, with an index from the Chartered Institute of Purchasing and Supply sinking to 47.9 from 50.5 in January.

Europe's manufacturing sector contracted for the nineteenth month in a row as the continent's debt crisis weighed on demand. Although still expanding in China, a separate survey showed the pace of manufacturing in Asia's largest economy was at a five-month low.

America's manufacturing sector offered the one bright spot, with an index from the Institute of Supply Manufacturing climbing to a better-than-expected 54.2 last month from 53.1 in January.

Despite the better performance from the US manufacturing, the International Monetary Fund warned this week that the spending cuts will knock about half a percentage point off growth in the world's largest economy.

"The problem though is that we just don’t know how it (the US economy) will react once the cuts really start to come through," said James Knightley, an economist at ING.