By Jonathan Cable
LONDON (Reuters) - China's giant manufacturing industry contracted and euro zone and U.S. growth eased in August in data published on Tuesday, while the International Monetary Fund cut its forecast for world growth this year.
Stocks on major markets tumbled along with commodity prices following the data, with markets still trying to gauge the likelihood of a September interest rate hike by the Federal Reserve.
"It's all consistent with a global economy which clearly is struggling to make any significant headway," said economist Peter Dixon at Commerzbank (XETRA:CBKG).
"As a consequence central banks which are thinking about raising interest rates in the near future will be looking at these numbers and it will maybe give them a little pause for thought."
Global factory activity expanded at its weakest pace since July 2013 in August, with JPMorgan's Global Manufacturing Purchasing Managers' Index, produced with Markit, sinking to 50.7 from 51.0 in July.
August was the 33rd straight month the index has been above the 50 level that separates growth from contraction. The global PMI indicator combines survey data from countries including the United States, Japan, Germany, France, Britain, China and Russia.
"The August PMI surveys suggest that conditions in the global manufacturing sector remain relatively lacklustre, with growth staying stubbornly below its long-run trend," said David Hensley, a director at JPMorgan (NYSE:JPM).
Global economic growth is likely to be weaker than earlier expected, the head of the IMF said on Tuesday, due to a slower recovery in advanced economies and a further slowdown in emerging nations.
CHINA MANUFACTURING CONTRACTS AGAIN
Activity in China's manufacturing sector contracted at its fastest pace in three years in August, according to official data, reinforcing fears of a sharper slowdown in the world's second-largest economy despite a flurry of government support measures.
The Chinese government's PMI fell to 49.7 in August from the previous month's reading of 50.0, in line with expectations of analysts polled by Reuters..
A private survey from Markit/Caixin showed China's factory sector shrank at its fastest pace in almost 6-1/2 years last month, with the PMI dropping to 47.3, the lowest since March 2009, from July's 47.8.
Even China's services sector, which has been one of the few bright spots in the sputtering economy, showed signs of cooling, expanding at its slowest pace in more than a year, Markit said.
"Today's reading suggests that manufacturing activities in China remain weak. We now expect GDP to grow by an annual 6.4 percent in the third quarter," ANZ bank economists said.
Indian manufacturing growth slowed, with the Nikkei India manufacturing PMI compiled by Markit at 52.3 from July's 52.7.
Japanese data went against the trend, with manufacturing growth the strongest in seven months, reinforcing expectations the economy will rebound from a second-quarter contraction.
In a sign of slowing global demand, exports from South Korea dropped nearly 15 percent in August from a year earlier, with shipments to China, the United States and Europe all weaker, a trend HSBC's Frederic Neumann called worrisome for the global trade cycle.
"The country, after all, has long been a reliable bellwether. Korea's PMI is still negative, and new export orders again contracted, even if at a less rapid pace than before," Neumann, co-head of Asian economics research, said.
ECB TO EXTEND ASSET BUYING?
Euro zone manufacturing growth eased in August, adding to the ECB's woes as it battles to spur expansion and inflation with an asset purchase program.
Markit's final manufacturing PMI for the euro zone was 52.3 last month, down from 52.43 in July, though it has been above the 50 mark for over two years.
The disappointing readings come almost half a year after the ECB began pumping 60 billion euros a month of fresh cash into the economy and a day after official data showed inflation in the 19-country bloc at just 0.2 percent.
In one bright spot, euro zone unemployment unexpectedly fell to its lowest level in more than three years in July, official data showed.
However, a two-year spell of jobs growth across British factories came to an end last month as manufacturing activity expanded at a slower pace, suggesting the sector is unlikely to boost economic growth much there this quarter.
"Sterling's appreciation and the continued sluggishness of the euro zone economy's recovery suggest that a sustained revival in the export-orientated manufacturing sector will remain a distant prospect," said Samuel Tombs at Capital Economics.
U.S. GROWTH SLOWS, CANADA CONTRACTS
Growth in the U.S. manufacturing sector slowed to its weakest in almost two years in August, with the Markit PMI falling to 53.0 in August, down from 53.8 in July.
"August's survey highlights that the U.S. manufacturing sector continues to struggle under the weight of the strong dollar and heightened global economic uncertainty, but resilient domestic spending and subdued cost pressures are keeping the recovery on track," said Tim Moore, senior economist at Markit.
"Reflecting this, new orders from abroad have now fallen in four of the past five months, which represents the weakest phase of manufacturing export performance since late 2012."
A reading from the U.S. Institute of Supply Management (ISM) also showed U.S. factory activity growth slowing in August, with its PMI at 51.1 from 52.7.
Canada's factory activity contracted in August, with the Markit/RBC PMI falling to a 49.4 from 50.8 in July.
In other data on Tuesday, Canada's economy shrank at an annualized 0.5 percent rate in the second quarter, putting the country in recession for the first time since the 2008 financial crisis with cheaper oil prices taking a toll.
Brazil's Markit/HSBC PMI fell further in August to 45.8 from 47.2 in July. Brazil's economy shrank 1.9 percent in the second quarter from the previous three months, government data showed on Friday.