Business activity in the eurozone was close to stagnation in October, while it declined in Japan, an indication that a wave of interest-rate cuts by leading central banks over recent months has yet to turn around a slowing global economy.
Around the world, factories have been hit by rising tariffs and slowing investment spending as businesses opt to wait out a lengthening period of unusually high uncertainty about future trade relations between the world’s leading economies. Caterpillar Inc., a maker of construction and mining equipment, Wednesday cut its profit forecast for this year, saying that global economic uncertainty is prompting customers to hold off on big purchases.
Those broader problems have been compounded by turbulence in the automobile industry, which faces more strict emissions standards and signs of saturation in some key markets.
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Central banks have responded to weaker manufacturing output by cutting their key interest rates. The U.S. Federal Reserve has taken the lead in providing fresh stimulus to growth, cutting its key interest rate in July and again in September. It is expected to do so again when policy makers meet next week.
But their actions in 2020 will largely be determined by whether they succeed in preventing the slowdown from spreading to the services sector, which is much larger.
Surveys of purchasing managers in the eurozone released Thursday indicated that the manufacturing contraction continued into the fourth quarter, while the services sector teetered on the brink of stagnation.
Data firm IHS Markit said its composite Purchasing Managers Index for the eurozone—a measure of activity in the manufacturing and services sectors based on surveys of 5,000 businesses—edged up to 50.2 from 50.1 in September, barely above the 50.0 level that separates an expansion from a contraction.
Economists expect that similar surveys of U.S. businesses to be released later Thursday will record a slight cooling of growth in the services sector, and a sharper slowdown in manufacturing.
The eurozone survey pointed to a ninth straight month of decline in factory output, with the PMI for the sector unchanged at 45.7, and there are signs that some services businesses with close links to manufacturing are suffering as the PMI for that sector edged up to 51.8 from 51.6.
Italy’s Grimaldi Group, one of the world’s biggest oceangoing car carriers and heavy-equipment movers, expects stagnant demand over the next year, citing the trade disputes between the U.S., China and the European Union.
“Tariffs and sanctions hurt trade,” Emanuele Grimaldi, a co-owner of the shipping giant founded by his father, said in an interview. “They raise prices for consumers and give them less choice. The escalating trade wars have escalated enough. It’s now time to fix the damage.”
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But there are also signs that the slowdown may soon spread to services that are offered to consumers rather than businesses. IHS Markit said manufacturing jobs were cut at the fastest pace since the start of 2013, when the eurozone economy was mired in a government debt and banking crisis. A growing threat of unemployment could persuade households to hold back on spending, and a survey released by the European Commission Wednesday pointed to a significant weakening of consumer confidence in October.
“A further deterioration in jobs growth adds to the risk that the trade-led weakening is spreading further to the household sector, which could dampen growth further as we head towards the end of the year,” said Chris Williamson, IHS Markit’s chief business economist.
Similar surveys for Japan also released Thursday pointed to a fresh decline in activity during October, with the manufacturing sector contracting for the sixth straight month. However, IHS Markit said that weakness may reflect a rise in the sales tax at the start of the month, and a typhoon that caused widespread disruption, including the cancellation of games during rugby’s World Cup.
Most large economies have yet to release economic growth figures for the third quarter, but those readings that are available suggest activity slowed. South Korea is Asia’s fourth-largest economy, and its central bank Thursday said economic growth more than halved in the three months through September from the previous quarter as exports stalled and investment spending fell. That followed figures from China last week that showed the world’s second-largest economy slowed again in the third quarter.
—Costas Paris in New York and Kwanwoo Jun in Seoul contributed to this article
Write to Paul Hannon at paul.hannon@wsj.com
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2019-10-24 10:58:00Z
https://www.wsj.com/articles/global-easing-cycle-fails-to-arrest-economic-slump-11571914686
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