Home Business Global factories thirsty for demand, need incentive

Global factories thirsty for demand, need incentive

January surveys of global factory activity released on Monday showed the new year began much as the old one ended – with too much capacity chasing too little demand. China was again the epicentre of Asian disappointment. The official measure of manufacturing fell to its lowest since mid-2012. The weakness also encompassed such bellwethers of high-tech trade as South Korea and Taiwan, reports the Media. Manufacturing growth also slowed in the euro zone at the start of 2016. Incoming orders showed no meaningful increase, even though companies cut prices at the deepest rate for a year. British factories did enjoy a faster start to the year than expected, but companies cut staff at the fastest rate in three years and export orders fell despite a weaker sterling GBP=. “It wasn’t the best start to the year, but it wasn’t awful. Markets are pricing in a worst-case scenario and we are not seeing that yet,” said Peter Dixon, an economist at Commerzbank. Stock markets, commodities and oil prices have been battered since the start of the year by concern the Chinese economy, the world’s second largest, is struggling. Such concern has eroded expectations for how fast the Federal Reserve will raise U.S. interest rates, after its first increase in almost a decade in December. Forecasts for Bank of England tightening have also been pushed well back. A dearth of demand and resulting downward pressure on inflation was why the Bank of Japan felt moved enough to cut interest rates below zero last week. Meanwhile, having failed to get inflation anywhere near its target – and with demand so low – the European Central Bank is likely to cut its deposit rate in March, and possibly increase its monthly asset purchases. “It’s less to do with what is happening with the real economy and more to do with inflation. It’s more of an inflation story than a growth one,” Dixon said. Markit’s manufacturing Purchasing Managers’ Index for the euro zone will bolster those expectations. It sank to 52.3 from December’s 53.2, in line with an earlier flash estimate and above the 50 mark that separates growth from contraction. January’s weakening came as companies offered steep discounts on their goods. A sub-index measuring output prices plummeted to its lowest reading since January 2015. Consumer prices rose just 0.4 percent last month on a year earlier, official data showed on Friday, nowhere near the ECB’s target of close to but just below 2 percent. Monday’s data foreshadow a U.S. survey later in the day. A contraction in manufacturing is expected, although a strong outcome from the Chicago region last week suggests the result may beat forecasts.