The global recovery from recession seems to be losing momentum as the commodity prices are on the rise. The manufacturing indexes from Asia, to U.S. to Europe fell in July.
The pace of factory growth in Europe and China has slowed down and in the U.K., Russia and Australia, manufacturing has shrunk. After the dollar?s 7 % drop against the euro this year, the U.S. manufacturing index dropped further than what the economists predicted.
Job cuts through the world are weakening the confidence of consumers, leading to a cycle that would further slow down recovery. Europe?s largest bank, HSBC Holding Plc (HSBA) stated it plans to cut upto 30,000 jobs by 2013.
David Owen, Chief European Economist, at Jefferies International Ltd. London, believes that when coming through the crisis countries have to be more dependent on the manufacturers doing well rather than the consumers.
However from 55.3 in June a manufacturing index of the the Institute of Supplies Management fell to 50 .9., much lower than the median estimate of 54.5 in a Bloomberg news survey of 80 economists.
In a factory gauge by Markit Economic ?in the U.K. , there was a fall to 49.1 from 51.4, the lowest it has reached since June 2009. IN Russia there was a drop from 49.8 to 50.6, while Australia? went to 43.4 from 52.9.
The decline in the U.S. and U.K.?s economies have also affected China?s purchasing index which dropped two points from 50.9 as per data from the China federation of Logistics and Purchasing.
Volkswagen AG, Europe?s largest automaker, stated the rising commodity prices and the euro?s rising value will not lead t pleasing consequences, as they do not expect high profits for the second quarter of the year. This rise in price is also acting as an obstacle to global economic growth. The oil and wheat prices have risen up to 40 % and 35 % respectfully over the past year.
The governments of Greece and Spain are trying to deal with the deficits by containing the borrowing costs and taking measure to defend the credit ratings.
Markit published it?s composite index of European manufacturing and services in July 21st, stating it fell to the lowest in two years, 50.8 .
The U.S. is on the verge of reaching it?s limits to borrow due to the slow growth. The dollar has fallen by almost 1% against foreign currencies.
As per Rebecca Patterson, chief markets strategist at JPMorgan Asset Management unless the weak dollar affects the stock market it is unlikely that the U.S. authorities will intervene.
Consumers and companies are inevitably under pressure. James Holt the director of BlackRock Investment Management (Australia) Ltd. said that the manufacturing report. ?is a reminder that this overlong and confidence-rattling debate about the debt ceiling takes place against the backdrop of a historically weak economic recovery.?
Sources: Bloomberg, The Wall Street Journal, San Francisco Chronicle