European crisis hits world’s factories in June

By Yati Himatsingka and Jason Lange, Reuters

LONDON/WASHINGTON–Europe’s debt crisis slammed into the world’s factories last month, with U.S. manufacturing contracting for the first time in nearly three years and Asian countries hit hard by crumbling orders from abroad. Some of the most grim data released on Monday was from the eurozone. The jobless rate in the currency bloc rose to a record high in May while a measure of factory activity held steady at its lowest level since June 2009. Other factory surveys — from the United States to China and Brazil — suggested Europe’s woes were reverberating throughout the global economy. “There is no doubt that there are common driving factors now in the global slowdown and the euro area is probably the most dominant one,” said Jeavon Lolay, global economist at Lloyds Banking Group. “It is hitting confidence, it is hitting exports and it is probably hitting credit as well and bank lending.” The U.S. factory sector was dragged down in June by a plunge in new orders and a sharp drop in exports, the private Institute for Supply Management said. The ISM’s index of factory activity fell to 49.7, just below the 50 mark that signals growth.

“This is the biggest sign yet that the U.S. is catching the slowdown that is well underway in Europe and China,” said Paul Dales, an economist with Capital Economics in London.

The weak U.S. factory data puts pressure on President Barack Obama ahead of his November re-election bid, and could fuel expectations of the Federal Reserve easing monetary policy further at its next meeting, which ends on Aug. 1. In Europe, Markit’s Eurozone Manufacturing Purchasing Managers’ Index (PMI) was unchanged at 45.1 in June, its lowest reading since June 2009.

Manufacturing activity in Germany and Spain contracted at the fastest pace in almost three years, and while French and Italian PMIs rose slightly, they were still below the 50 mark. Released after a European Union summit where leaders agreed to help Spain and Italy borrow money, the eurozone data highlighted the problems policymakers face to restore the region’s economic fortunes. Around 17.56 million people were out of work in the 17-nation eurozone in May, or 11.1 percent of the working population, a new high since euro area records began in 1995, the EU’s statistics office Eurostat said. “Unemployment will continue to rise until we see an improvement in the economy, and that may not be until next year,” said Steen Jakobsen, chief economist at Saxobank.