Fears of a 'double-dip' downturn gain ground
Monday 02 August 2010
Fears of a "double-dip" global recession are gaining ground, as Chinese manufacturing growth cools and British industry's recent gains look set to slow.
Hot on the heels of last week's disappointing US GDP figures – showing that in the second quarter growth dipped to 2.4 per cent from the 3.7 per cent spurt earlier in the year – China's Federation of Logistics and Purchasing yesterday published data indicating that manufacturing growth slowed to a 17-month low in the aftermath of a government clampdown on property speculation and polluting factories.
The Chinese index fell from 52.1 to 51.2 in June, its lowest level since the manufacturing sector stopped contracting in March 2009.
And although China is still set for a whopping 9.5 per cent expansion this year, up from 9.1 per cent in 2009, the dip in the crucial manufacturing sector raises concerns that slower growth in the world's fastest expanding economy could put the brakes on a global recovery already faltering in the face of debt-busting efforts in developed economies.
Ostensibly positive figures from Britain's manufacturing industries paint a similar picture of tricky times ahead.
Thanks to an unexpectedly strong start to the year, the EEF manufact-urers' organisation has trebled its industrial growth forecasts for 2010. In a report published today with accountants BDO Stoy Hayward, the EEF revises its growth estimates up to 3.8 per cent this year, from earlier predictions of 1.2 per cent.
But with output down by 15 per cent over the recession, the sector clearly has some way to go to make up lost ground. And the EEF has revised its 2011 growth forecast downwards, from 3.8 per cent to 3.4 per cent.
Key factors in the strong performance so far include: the weak pound; re-stocking after last year's savage rundown of inventories; and swift global recovery. But the outlook for the coming year is less certain, as global growth stumbles and the Chancellor's public-spending axe looms, says the EEF. "After the recession, manufacturing got out of the starting blocks faster than expected," Lee Hopley, the EEF chief economist said. "But we expect the future to be rather bumpier."
The EEF analysis is echoed by a CBI survey of 403 small and medium-sized manufacturers, also published today.
Some 41 per cent of respondents reported increased output over the past three months, against 20 per cent who reported a fall – producing a positive balance of 21 per cent, the highest figure since April 1995. But again, the majority of companies are expecting output to slip back in coming months.
This increasingly uncertain outlook is reflected in expectations that the Bank of England's Monetary Policy Committee will this week hold interest rates at 0.5 per cent, despite the 1.1 per cent quarter-on-quarter boost to GDP.
"While most members are encouraged by the sharp improvement in GDP growth, they are treating the performance with a considerable degree of caution and continue to have serious concerns," Howard Archer, at IHS Global Insight, said. "There is clear concern over the threat from slowing global growth and tight credit, as well as from the fiscal squeeze."
Following last week's GDP data, US Labor Department jobless statistics, out this week, are expected to show further rises in unemployment, which is already running at 9.5 per cent.
The former Federal Reserve chairman, Alan Greenspan, weighed in yesterday, decrying the state of the US economy at present as a "quasi-recession", and warning that a double-dip is "possible if home prices go down".
"We're in a pause in a modest recovery, but a pause in the modest recovery feels like a quasi-recession," he told NBC.
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